Bernard Madoff, the Mafia, and Naked Short Selling

January 19, 2009 2 min read

Bernard L. Madoff was once the chairman of the NASDAQ stock exchange. He was one of the most important market makers on Wall Street. And he managed what was, by some estimates, the largest hedge fund on the planet.

Yes, Bernard Madoff was an impressive man. That much was clear even before we learned that his $50 billion Ponzi scheme may have been orchestrated in cahoots with the most powerful, sophisticated, and indiscriminately murderous organized crime syndicate the world has ever known.

Charles Gasparino (citing “speculation” from investigators) reported last week on CNBC that the Russian Mafia might have been partners in Madoff’s larcenous fund business. Or perhaps the Mob had an even greater interest in Madoff’s market making operation, as some of our sources have told us in recent weeks.

Either way, there is a certain cachet.

But it wasn’t just pierogies and pistol-packing wiseguys in purple suits. Mr. Madoff was also a dedicated public servant, volunteering countless hours at the Securities and Exchange Commission.

Indeed, Madoff seems to have helped write some of the SEC’s rules. For example, Madoff had a good deal of input an SEC rule that exempted market makers (i.e. Madoff) from various regulations governing short sellers (i.e. Madoff’s friends).

Madoff’s rule ensured that market makers (Madoff) could, among other things, engage in so-called “naked short selling.” To sell “naked” is to sell stock that one does not actually possess. That is “phantom stock,” according to the SEC Chairman and many others.

Sometimes, short sellers (who profit when shares lose value) offload massive amounts of phantom stock to drive down prices, destroy pubic companies, or even crash the market. That is why there used to be restrictions.

Madoff also obtained an exemption allowing market makers to sell short on a down tick, which made it easier for unscrupulous hedge funds to drive down stock prices.

At any rate, I don’t think Madoff had an office at the SEC. He certainly was not employed there. But the SEC was glad to have Madoff write a rule exempting Madoff from the rules. The SEC was so thankful that it named one of its rules after the great man himself.

The rule allowing market markers to sell on the downtick was called, “The Madoff Exception.”

It remained against the law for hedge funds to sell phantom stock to manipulate the markets. It was also against the law for market makers to help hedge funds orchestrate such schemes. But under the Madoff regulatory regime, unscrupulous short sellers (i.e. friends-of-Madoff) could engage in this illegal activity so long as they did so with the illegal connivance of a law-breaking market maker (i.e. Madoff).

A few months ago, this naked short selling was implicated–by numerous academics, the U.S. Chamber of Chamber of Commerce, the Secretary of the Treasury, the CEOs of Wall Street’s biggest banks, respected law firms, John McCain, Hillary Clinton, and numerous congressmen – in the near total collapse of the American financial system.

The SEC has not prosecuted anybody for this. After all, there is an “exception.”

It is unclear whether the SEC will continue to name this “exception” after a man who might have absconded with 50 billion dollars (a sum that exceeds the gross domestic product of Pakistan) in league with the Russian Mob, an organization that is said to be in the market for a nuclear bomb – in addition to narcotics, sex slaves and, yes, phantom stock.

In any case, the major news organizations seem to have lost interest.

* * * * * * * *

Mark Mitchell is a reporter for DeepCapture.com. He previously worked as an editorial page writer for The Wall Street Journal in Europe, chief business correspondent for Time magazine in Asia, and as an assistant managing editor responsible for the Columbia Journalism Review’s online critique of business journalism. He holds an MBA from the Kellogg Graduate School of Management at Northwestern University.

128 Replies to “Bernard Madoff, the Mafia, and Naked Short Selling”

Great article once again Mark. Now the question begs, did all these SEC officials/regulators actually get snowed by Madoff or were they Complicit by looking the other way and perhaps maybe had their own cash cow investments based on their knowledge of and refusal of adhering to the rules? Who better than to the ones making/enforcing the rules to be able to skirt around those very rules for financial gain?

Either way, what a mess we are in. I am just amazed at all the Ponzi cases being spit out by the SEC daily, yet all these years all you would see was a pump and dump penny stock scheme-which is still wrong. I look at all the times companies with juice got a slap on the hand by the SEC and went on to aid and abet this financial crisis. I think back on all the endless hours people begged for the SEC to do something against these crooks and it fell on deaf ears..even when it involved the Madoff exception and Madoff himself and a $50Billion reason to look the other way. I am think about Ms Shapiro saying FINRA only looked at the brokerage and could not have found this scheme, only to find out Madoff never made a trade of his funds through his own brokerage….HUGE RED FLAG…..
This leaves me to believe the system as a whole is CORRUPT and needs to be abolished ! Keep up the good work. People seem to only listen when they are directly affected, and by golly, the USA and all the people should be reading DC in the near future because we have all been bamboozled by the powers that be.
May God have Mercy on our souls.

The original concept of the rule was that his computers couldn’t fill a buy order in 1/100th of a second without the ability to naked short and buy back in a second or two. Funny how quickly seconds can turn into years.

Naked Shorting exposed in this 25 minute video from Bloomberg Network’s “Phantom Shares”; please forward this powerful video to anyone you know who has invested in the stock markets or has a 401(k), 403(b), IRA or pension plan:

This site states what the Madoff exemption was a way to get around the uptick rule.

If the OMM was renting out its exemption, selling puts and shares, the party buying them could sell them long since they would be credited with share entitlements fabricated out of thin air. Not only were these shares watering the market, they were able to overwhelm the bid with them and drop the price. These shares were probably never reported as a short sale. The OMM would credit these to a short seller in a block and then they were used as bullets to drop the price.

It appears from the Dave Kansas article that Madoff was sending checks from a Swiss bank account. It could be nothing. Swiss banks have branches in the US. There might be a little tax problem here. If the mistress was receiving more than 12K a year, there would have been a gift tax.. It was probably more than 12 K a year as she was paying rent, bought a car and was making donations. There is a life time exemption… but what’s a girl to do?

Patrick and Mark,
Once again you shine. Keep up the great work. Oz is almost exposed.

Regulation SHO, Rule 200 – Order Marking and Ownership
SEC Rule 200(g) defines the ownership of securities with regard to short sale transactions previously enumerated under SEC Rules 3b-3 and 10a-1(d). Pursuant to the provisions of SEC Rule 200, all sales of equity securities must be marked “long”, “short”, or “short exempt”.
Orders can be marked “long” only when the seller owns the security being sold, and such security is in the physical possession or control of the broker-dealer, or it is reasonably expected that the security will be in the physical possession or control of the broker-dealer prior to settlement.
Orders must be marked “short exempt” if the seller is entitled to rely upon any exception to the tick test under SEC Rule 10a-1 and Exchange Article IX, Rule 17. Short sale transactions involving a specialist pursuant to the so-called “Madoff” exception or the equalizing exemption under SEC Rule 10a-1(e)(5) (sales by specialist or market maker on a zero-minus tick), however, need not be marked as “short exempt.” Orders marked “short exempt” must also comply with the stock locate requirements detailed in SEC Rule 203 below, unless some exception applies.http://www.chx.com/content/Participant_I….ulation_SHO.pdf

Tar and Feather Them,
I concur. In fact I’m recommending legislation now that any ex-SEC employee convicted of abuses related to seeking favors from ex-colleagues at the SEC (still working there) seeking favorable treatment of their new employers via deterring investigations or making effort to avoid prosecution must surrender any future pension benefits.

U.S. citizens are well aware of this “revolving door” from the SEC to jobs on Wall Street paying 10-times as much associated not with the skills of the ex-SEC employees as much as with the relationships they have developed while at the SEC that can be leveraged to deter looking into the misbehavior of the ex-SEC’s new employer.

People seeking employment opportunities at the SEC for that very reason need to get the message up front that this type of behavior is no longer allowed. A tremendous amount regarding the culture at the SEC was learned via the Aguirre case and that knowledge needs to be implemented into tangible policies that can yield results.

Am I the only reader here who is worried about Geithner and Schapiro? Obama might not know the facts about FTD’s in equities and Treasuries. Can we get to the senators who will be at the confirmation hearings? Can we get them to raise these questions at the hearings?

“The market doesn’t trust that banks have properly marked their balance sheets and their loan portfolios. The sense is there are further marks to come, that tangible book is not as it is stated today. We’re looking for bottom; we’ll find a bottom,” said Robert Patten, a bank analyst for Morgan Keegan.

1. I thought banks are required to use market-to-market valuation. (?)

2. If banks are required to value their assets based — on a broken market valuation system — why does this Morgan Keegan analyst think the banks are fudging their numbers? To instill even more fear, doubt, and uncertainty?

Fred,
I already called in to Grassley’s office regarding Shapiro statement at her confirmation hearing when he had asked her why FINRA missed the fraud. She said the FINRA could not have found Madoff’s fraud because they only did inspections on the brokerage side not the investment side.The same day an article came out that he never traded his ( Madoff’s) funds through his ( Madoff’s) own brokerage firm. A huge red flag in my book. I expressed my concerns about that and asked that Sen Grassley question Shapirio about those inspections in light of the new information that had surfaced the same day. Hoe could FINRA miss that ? Probably another “Madoff exception.” I also spoke with the Reporter from the Boston Globe who wrote the article regarding no Maddoff trades found in Madoff’s own brokerage and raised the same question. So, I did my part on Shapirio anyway. Geithner is another RAT all together.

FINRA Claims No Jurisdiction over Madoff Fraud?
Written by Mark J. Astarita, Esq. on Thursday, January 15, 2009

FINRA defends its role in Madoff scandal | Reuters

“None of the fraudulent activities that have been alleged deal with the activities of the broker-dealer or come under the jurisdiction of FINRA.”

Reuters provides this quote which it claims comes from an email from FINRA. Interesting timing, on the eve of Mary Shapiro’s confirmation hearings.

Reuters is reporting that there is an email from FINRA floating around. There is nothing at FINRA’s web site. I have never seen, nor heard, of FINRA or its predecessor, the NASD, sending out press releases by emails.

So, I don’t have the email, but apparently Reuters does, and the Financial Times does. FT has the story completely backwards, claiming that there is a gap in regulatory coverage, which allowed the fraud to go on. FT is apparently drinking the FINRA cool aid, since the fraud was run through the broker-dealer, and if it wasn’t run through the broker-dealer, the states and the SEC had jurisdiction over the operation.

It is true that FINRA does not have jurisdiction over investment advisers, but Madoff’s firm was NOT a registered investment adviser. Madoff ran his entire operation from the broker-dealer. That puts his advisory business under the jurisdiction of FINRA – in fact, running an investment advisory business at a broker-dealer without registration as an investment advisor is a violation of FINRA rules!

He had his advisory clients mixed in with his broker-dealer client. Their money and investments were all in the broker-dealer.

This is not the case of there being two separate operations, one under SEC jurisdiction and one under FINRA jurisdiction. FINRA has jurisdiction over the broker-dealer. And to claim that the broker dealer was not involved is just plain wrong.

The broker-dealer was clearing the trades, it was executing the trades (to the extent any trades actually existed) and it was carrying the accounts for many of these customers. FINRA clearly had jurisdiction over the entity that was putting out the account statements, and holding the customer funds. FINRA was reviewing the entire operation’s financial statements.

According to the SEC and the United States Attorney’s office, and information that we have obtained during our investigation, Madoff only had one financial operation, his broker-dealer. He ran his investment advisory business through the broker-dealer. He gave investors account statements that were created by the broker-dealer. Investors funds were held at the broker-dealer.

The broker-dealer has been shut down because Madoff ran his scheme through it.

The SEC has alleged that Madoff and the broker-dealer, operated a Ponzi scheme, and violated the federal securities laws. They have shut down the broker-dealer because of this alleged fraud. The SEC has also alleged, quoting from their court papers in support of an injunction – “[t]hrough the investment adviser services of BMIS [Madoff’s
broker-dealer] Madoff has conducted a ponzi-scheme, whereby he has
false [sic] represented to investors that returns were being earned on
their accounts at BMIS…”

That alleged conduct is directly under FINRA’s jurisdiction. FINRA is the primary regulator for the broker-dealer. FINRA is responsible for oversight of its account statements, which the SEC alleges were fraudulent. FINRA is also responsible for reviewing the firm’s financial statements. If the customer account statements were fraudulent, the firm’s financials were fraudulent, since they incorporate financial information from the customer accounts. In order to produce fraudulent account statements, the firm’s back office and clearing operations had fraudulent information.

While it may be true that no one told FINRA that there was a Ponzi scheme going on at Madoff’s broker-dealer, clearly the allegations “deal with the activities of the broker-dealer or come under the jurisdiction of
FINRA.”

If anyone has this email I would love to receive a copy. Either Reuters is misunderstanding, the SEC is wrong or FINRA is fibbing.

I wrote emails to Grassley and Baucus on the Senate Finance Committee. They take up Geithner’s nomination tomorrow. I hope he gets some serious questions. I am afraid Obama may not know the extent of the problems. Did Geithner tell him all he knows?

Fred,
My apologies. I did mean to address that post to you and inadvertently posted it as if it were yours. From what I see they are all playing off Geithners tax evasion as you know the routine, just a mistake. I would be appalled if he were to be confirmed when others have stepped down for just having illegal nannies/housekeepers without evading taxes. We’ll see if we get that CHANGE that was promised to us. If these confirmations go through, more of the same is expected.

Sean,
That doesn’t surprise me but I am just as fearful of Shapiro is she is confirmed.
Where are the Indictments already ? Her lie regarding FINRA’s role in or lack there of the Madoff scandal. A lot with these 2 just do not pass the sniff test.

Would’nt it be nice if another Shapiro was to take her place.. Robert Shapiro that is. We should be that lucky but he is working with the transition team, so lets see what pans out here. Could she be any worst? Gosh I hope not!!!

In another series of violations ignored by federal regulators, on May 6, 2005, clearing firm Jefferies and Co. sent a letter to both the NASD (FINRA) and the SEC admitting they had traded 111 billion shares of CMKX outside the system, or “ex-clearing”. Jefferies said that they made a “business and operational risk decision to allow a limited number of broker-dealer customers” who were long sellers of CMKX to settle trades outside the clearing system. In the month of July, 2005 alone, Jefferies did 80 transactions involving CMKX through ex-clearing. Shortly afterwards, Jefferies and Co. announced record revenues and earnings for the quarter ending September, 2005. The NASD, then under the leadership of Mary Shapiro, waited a full year after receiving the letter to charge broker NevWest with trading violations, and never filed a single charge against Jefferies or any other broker.

Can this evidence be more damning than the Madoff case? Shows a pattern huh? “If there was only a pattern here”

WASHINGTON – The Senate is expected to consider several of President Barack Obama’s Cabinet nominees Wednesday. A vote to confirm Hillary Rodham Clinton as secretary of state, whose confirmation was blocked Tuesday by Republican John Cornyn of Texas, is expected Wednesday.

Timothy Geithner, the nominee to head the Treasury Department, faces the Senate Finance Committee, where he will have to explain his initial failure to pay payroll taxes he owed while working for the International Monetary Fund.

The Judiciary Committee is scheduled to consider the nomination of Eric Holder as Obama’s attorney general. And the Commerce Committee will hold a confirmation hearing for Ray LaHood as transportation secretary.

I wonder if Chris Cox resignation was by calculated design. First and foremost,
to get him out of the negative press surrounding Madoff, and secondly to make way for a rush to fill the position by Shapiro. Could this be an ” I’ll step down if it helps get Shapiro confirmed as a necessity to fill that slot? We’ll go easy on you if you set the motion by leaving to get her confirmed?” Perhaps it would persuade a quick confirmation through the senate.
My opinion on Shapiro is if she didn’t shake things up and stand up for the investment community while at FINRA, her now stated commitment to clean it up is just words to get nominated as to continue the sleazy politics as usual.

“There is no clear evidence that restrictions on short selling do indeed limit share price volatility or reduce the ultimate asset price declines,” the European Banking Federation said in comments to a grouping of all national market regulators in the EU.

Ha….
Geithner was asked just a minute ago specifically about FINRA admission they did look at Madoff’s books every 2 years, and FINRA’s admission after the fact they found no evidence of trades by Madoff funds through Madoff Brokerage since the scheme unraveled, but, he would only say it was a system failure, and not state for the record it was a FINRA failure. (Which would have put Shaprio on the spot.) What a bunch of crooks placed in high positions by our ? unethical elected officials.

Continuing on with the thesis that the single most practical thing that victimized corporations and the investors therein can do is to close up the superior knowledge disparity regarding how our clearance and settlement system really operates that the perpetrators of abusive naked short selling (ANSS) frauds have over the average investor or average member of a management team I offer the following:

ATTAINING CRITICAL MASS TO MAINTAIN THE STATUS QUO

What do abusive hedge fund managers have that victimized investors don’t have besides this knowledge superiority? They have attained the critical mass level needed to get things done. What needs to get done to be able to predictably shunt the investment funds of unknowing investors into their wallets i.e. to maintain the status quo? It’s all about “asset allocation”. Some of the money within these “dark pools” of money needs to be allocated merely to maintain the darkness. This is effected by donations to the politicians that can be counted on to fight any efforts to regulate hedge funds i.e. to shine a light onto their secrecy obsessed activities. Recall that trying to pull off a heist as obvious and as heinous as refusing to deliver that which you sell after taking an investor’s funds is going to need a high level of darkness.

Other funds need to be allocated to the parties that can be counted on to flex their muscle when the corrupt status quo is in danger of being disrupted by legislative improvements like Reg SHO i.e. the lobbyists. We witness their efforts every time the SEC sponsors a “comment period” while reviewing proposed legislation to address these abuses. This is when the “L” word gets bandied about and we learn of how critical all of this theoretically beneficial “liquidity” is to our markets. The problem is that “liquidity” via naked short selling is synonymous with accessing the corrupt foundation of the clearance and settlement system based on CVP and the self-fulfilling prophecies attached thereto. We also hear about the “G” word and how critical it is to “Grandfather” in previous acts of fraud.

Yet other funds within this critical mass need to be allocated to the market intermediaries that really make things happen at the ground level. These are the abusive market makers, the abusive clearing firms and the prime brokers. After all this “cycle of corruption” needs to be “greased” to allow the gears to turn.

Gaining access to the corrupt foundation of our DTCC-administered clearance and settlement system illegally based on “collateralization versus delivery” (CVP) as opposed to “delivery versus payment” (DVP) takes money; you need “juice”. You need to “juice” that abusive market maker (MM) with “order flow” in order to get him to offer you space under that “umbrella of immunity” from having to make pre-borrows or “locates” before making admittedly naked short sales that was theoretically only to be legally accessed by truly “bona fide” MMs. They’re taking a risk of getting their hand slapped for committing these crimes albeit it’s not much of a risk when dealing with regulators and SROs (self-regulatory organizations) “captured” by the financial interests of those they’re supposed to be regulating. Nevertheless they need to be compensated for incurring this risk. The “currency” needed to “juice” all of the market intermediaries that facilitate these crimes is typically “order flow” which results in the generation of commissions and fees.

The key is to attain the critical mass needed to maintain the status quo that our markets have “devolved” to. Thus a “pooling” of funds is needed and due to the secrecy needed to maintain the corrupt status quo it needs to be a “pool” allowed to act in the dark. After all there are all of these “proprietary trading methodologies” in need of being protected. Since when did the refusal to deliver that which you sell qualify as a “proprietary trading methodology” deserving secrecy?

The rewards available to the contributors to these “dark pools” are enormous as the self-fulfilling prophecy of merely refusing to deliver that which you sell resulting in the shunting of an unknowing investor’s funds to the sellers of shares despite this refusal are easily accessed but only if you have the requisite level of “juice”.

In fact the rewards are so large and so predictable that the ultra-wealthy participants in hedge funds can afford to pay the usurious rates of 2% of funds under management and 20% of all profits (“2 and 20”) to their hedge fund managers. What ever happened to the discounted commissions available to those investing large amounts of cash? These seemingly usurious rates often amount to over $1 billion in annual “earnings” to the abusive hedge fund managers articulating these thefts. Note that not all hedge fund managers are abusive and participate in abusive naked short selling frauds.

Have you ever wondered why the mutual fund managers that have to disclose all of their activities to the SEC and to the public don’t make nearly this much despite the fact that they have assets to invest that totally dwarf that of the hedge fund managers? What is the main thing that hedge funds do that mutual funds don’t do? The answer is they can “short” stocks. What is it about “shorting” stocks that accounts for this massive differential in earnings? Those allowed to short stocks can access the corrupt foundation of our DTCC-administered clearance and settlement system founded upon “collateralization versus payment” or CVP and all of the self-fulfilling prophecies attached thereto. All they have to do is to refuse to deliver that which they sell and the DTCC-administered clearance and settlement system does the rest.

In naked short selling parlance Madoff basically “failed to deliver” on that which was bargained for. He therefore has an “FTD”. In keeping with the DTCC mindset that’s just fine as long as the FTD is recorded in a “C” sub account. After all, he may “eventually” deliver on that obligation to invest those funds and therefore he should have been left alone or maybe even nominated for employee of the month at the DTCC.

James,
Whether that letter was or was not written by Bernie I am sure we all have wondered the same things about Wall Street as a whole. We know of the huge bonuses, we know of the off shore accounts, we know of the lavish lifestyles, we know of the slap on the wrist they receive for ILLEGAL MISCONDUCT from our regulators and the list goes on and on. All we imagine Wall Street to be has been spot on and currently is everything written in this letter. The real question begs, how do you investigate, indict and ultimately clean up all those GREEDY, CRIMINAL PATHETIC HUMAN BEINGS ? Hell, not only would most of Wall Street be wiped out so would a large percentage of of Government. They talk about a company being too big to fail, well, Wall Street might be TOO BIG TO Clean Up and Indict.
Sadly, if Bernie does get some form of leniency for his help he would never remain alive for long. If the outsiders do not get him the insiders will. This is truly a case of no where to hide.

You guys, realize that a new sherriff is in town and he is being advised by the best!!

Recs: 3 Cox got out just in time! Obama slams the revolving door

“Any governmant employee is not allowed to go to work for any entity they were responsible for regulating for 2 years and are banned from attempting to influence any remaining employees after they leave their positions”

I would say that is a good start, say you not? Now we know why Cox and Paulsen left on the first thing smoking yesterday!!LOL!!!

After pondering that ? Bernie Madoff letter I had a revelation, with an exception of the use of our tax dollars for protection/security/Military as is was intended to be used for, anything beyond that (Taxes) is nothing more than a Ponzi scheme. Lets take a look at a few government programs:

1.Social Security-in the toilet

2.No child left behind-by means of education cuts-in the toliet

3. Medicare/Medicaid-in the toliet

4. Everyone deserves to own a home and get loans-in the toliet

5. Feed the hungry-in the toliet

Each of these examples show these in each case how government programs are designed to tug on our sympathy strings as a means to collect more taxes. Each of these programs ( there are hundreds upon hundreds ) more where these were created proves everything our government attempts eventually fails. Where is the government over site and transparency surrounding these programs and we only know how they work when we are told how they failed. Now I know why my great grands refused to collect from the newly created social security system, as they knew it was government welfare and they also knew once you accept you are forever at the mercy of the master. You give more than you will ever receive in a lifetime but you never know just how your contribution made a difference.
Classic example of robbing Peter to pay Paul to rob Paul to pay Patrick to rob Patrick to pay Pamela to rob Pamela to pay Phil…etc. By the time the money gets to the government, there is not enough funds to effectively make a change of difference in the lives of those it was intended for.
Life is like a PONZI SCHEME, wait ! LIFE IS A PONZI SCHEME.

As long as criminals keep looking like Grand Pa, we’re all screwed. And to think much blame is put on today’s generation. Just goes to show you that is not necessarily the case. Best to keep what money you have left under your mattress buried in a mason jar etc while it steadly loses its value.

I am a Madoff Victim and am asking other victims to contact me at madoffvictim@usa.com. We have formed a large group of former investors in an effort to support each other and to have a strong voice. We fear we will need this strong voice in an effort to make SIPC and the IRS be responsive to us. We know the SEC failed us miserably and don’t want the same failures from SIPC and the IRS.

Welcome and sorry for your loss. Actually, FINRA and Mary Shapiro failed you more than the SEC. There is plenty of blame to go around, but, letters to the Senate in opposition of the confirmation of Mary Shapiro is a start. ( if she has not already been confirmed.) Any victim of Madoff scheme should speak out against her confirmation since it did happen under her watch (FINRA), which she already tried to deny in her initial hearing.

The Hits just keep coming. Don’t these guys get it yet? NOBODY TRUSTS A THING THAT THEY DO!!!

SEC mocked again

From the San Diego Weekly Reader…..

Self-Probe? Ha!

By Don Bauder | Published Wednesday, Jan. 21, 2009

The Securities and Exchange Commission, the federal agency that is supposed to protect investors from Wall Street predators, says it is going to investigate how it missed the Bernie Madoff scam. San Diego’s Gary Aguirre, speaking from personal experience, knows that’s impossible. Any securities agency probe will be a cover-up.

New York’s Madoff ran a $50 billion Ponzi scheme. The securities commission admits that allegations about Madoff’s scheme had been repeatedly brought to the agency’s attention since 1999. “I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations,” proclaimed the agency’s Bush-era chairman, Christopher Cox, last month, announcing the supposed self-probe.

Balderdash. The only thing Cox is “gravely concerned” about is that the American public might finally understand the agency’s actual mission. For as Aguirre, a former attorney for the agency, points out, the Securities and Exchange Commission (SEC) does not exist to protect investors from Wall Street predators. It exists to protect powerful Wall Street predators from investors.

The notion that the agency can probe its own officials is hilarious — a real knee-slapper. In late December, Senator Arlen Specter (R-PA) heaped scorn on the securities agency’s ability to investigate itself in the Gary Aguirre case. Now the agency says it will open that probe again. “Reopening the investigation marks a new embarrassment for the beleaguered S.E.C., suggesting that, as in the Bernard Madoff case, it may have failed earlier to follow up adequately on strong indications of possible wrongdoing,” says Portfolio.com.

Aguirre puts it more strongly: the securities agency “cannot be trusted with an investigation of itself, especially when the investigation [involves] the highest levels of the SEC.”

Aguirre’s case lays bare everything that the securities agency is: a whorehouse catering to Wall Street’s elite. After a long and successful career practicing law in San Diego, Aguirre, brother of former City Attorney Mike Aguirre, decided to try public service. He joined the agency and began looking into a possible insider-trading case. A hedge fund, Pequot Capital Management, had made a bundle buying up stock in a firm just before the announcement that the firm would be acquired by another company. Pequot had also made money betting that the stock of the acquiring company would go down, as is normal. Before Pequot made those bets, John Mack, the hedge fund’s former chairman and a current investor, had talked with both the investment banking firm handling the acquisition and with Pequot’s current chairman, a close personal friend.

Aguirre wanted to interview Mack. But his boss said Mack had big Washington connections — specifically, to President George W. Bush. Aguirre protested. Just weeks after he had been given a strongly positive job review, Aguirre was fired. The Senate’s Committee on Finance and Committee on the Judiciary did a 108-page study on the matter.

There were some hair-raising findings. While Aguirre was trying to get the Mack interview, an attorney at the Debevoise and Plimpton law firm sent Paul Berger, Aguirre’s boss, an email with the opening words “Yowza!” It described how an ex-SEC lawyer could make $2 million a year with the firm. One of the top attorneys at the Debevoise firm contacted a senior official of the securities agency on behalf of Mack and behind Aguirre’s back. After he fired Aguirre, Berger took a job with Debevoise. Similar quid pro quos are called the “revolving door” phenomenon — agency officials do dirty work while at the commission and then go with a big law firm representing the crooks who got off. Mack wiggled off the hook and went on to become chief executive of Wall Street’s Morgan Stanley.

The two Senate committees vindicated Aguirre, denouncing his firing and concluding it was logical that he interview Mack. Then the agency’s inspector general, H. David Kotz, authored a 191-page study of the case. Kotz basically agreed with the two Senate committees. He recommended that the agency discipline its enforcement director and one other official. Kotz, too, blasted the ease by which the Wall Street law firm got special access to securities agency officials. He questioned the “impartiality and fairness” of the agency’s handling of the Mack investigation and firing of Aguirre.

Then the agency’s cover-your-ass team went into action. An administrative law judge, one Brenda Murray, was assigned to second-guess Kotz’s report. Just a few weeks later, her 15-page paper exonerated the two officials who Kotz said should be disciplined. Kotz was shocked and said so publicly.

Now we get to the heart of the agency’s double-dealing. As Senator Specter stated, Brenda Murray “was described in press accounts as an administrative law judge, and it was not until further inquiry that the SEC admitted she was not acting in a judicial capacity in issuing her decision.” In short, the agency picked a loyal staffer who happened to have the title “administrative law judge” and had her exonerate the officials who had been sharply criticized by the Senate committees and by the inspector general. But she was not acting as a judge at all — just a soldier taking orders.

Murray’s quickie report “was completely irregular in every detail,” says Aguirre. “It was outside the jurisdiction of an administrative law judge. The SEC pulled a scam.”

Senator Charles Grassley (R-Iowa), who spearheaded the investigation with Specter, said, “[I]t looked like the lawyers for the wrongdoers wrote the decision.”

Columnist Bruce Carton of Compliance Week wrote that agency staffers were stunned at the whitewash; Murray did not use the standard procedures for reviewing an internal-discipline recommendation. “Murray made her decision that discipline was not appropriate based almost exclusively on the one-sided information she received from counsel for the various subjects,” wrote Carton. “This information was not subject to any cross-examination or any follow-up by the [inspector general’s] office or other parties involved, and additionally was not provided under oath.”

One prominent attorney said that in Murray’s whitewash, the securities agency had merged “the functions of prosecutor, judge, jury, and appellate tribunal” under the same roof.

It gets even worse. One reason the Pequot case is being reopened is that a divorce suit has revealed that the hedge fund agreed to pay $2.1 million to a former Microsoft employee who was apparently feeding information on his former employer. “Pequot made a boatload of money” betting on Microsoft securities, based on such information, says Aguirre, but the agency found a way to drop the Microsoft angle of the investigation. But Aguirre has come up with new facts that have forced the agency to reopen the probe.

There’s more: In the same report in which she cleared Aguirre’s nemeses, Brenda Murray vindicated an agency official who closed an investigation into the derivatives dealings of Wall Street’s Bear Stearns in 2007. Early the next year, the Wall Street firm was rescued from bankruptcy when it was forced into J.P. Morgan, backed by $29 billion of federal money. Bear’s derivatives gambling was to blame. The agency missed it and then exonerated itself.

And the agency is going to look into whether it did its job properly in the Madoff case? Come now.

I am career military and my wife is a government employee……….so this financial crisis has very little affect on us. I’ve known about NSS before Patrick went public, but have done very little about it other than informing others that look at me like I have a cock growing out of my forehead. Most people are ignorant of how our financial markets work and sometimes, ignorance is bliss……….if it wasn’t my curiousity, I would be happy with my secure job, free medical, etc. However I feel for America knowing we are all getting ripped off………………Now to my story.

I live in San Diego, home to a lot of Hispanics that are or aren’t citizens (I have mixed feelings on that)………but lately, I have had MANY kids knocking on my door trying to sell homemade stuff, brownies/cookies/cupcakes……..with their parents waiting at the sidewalk in a reverse Halloween type deal. I’ve done my part and bought their wares as I know the economy is rough……………….but now they are showing up with jello in styro-foam cups……………………It pains me to see it because I couldn’t imagine my kids walking door to door peddling stuff so that they
can eat.

Sorry to be a downer……….couple beers already……………but I think it’s gonna get worse………..I want to do my part……….leave bigger tips to the restaurant workers, give more to charity, etc. Where do I stop though?

I feel your pain. Essentially we ( the people ) are doing those things the US Government claims to be doing via our taxes and all those billion dollar programs. We feed the world, yet hunger and starvation in numbers I can not comprehend is rearing its ugly head all around us by our own Greed infested Market/Wall Street/Government. It is with sadness I feel this way because like you, my spouse served in the Military and we both are in Medicine. I guess when many of our own elected officials are part of the problem no solution seems possible. I still believe in my country, but have lost faith in the leadership that sits there year after year and does nothing but aiding and abetting the largest financial scandal that will bring us to our knees as a nation. If they truly do not see what is going on by now then I have to believ they choose not to. Pray that those kids keep coming around with their jello because when they stop coming, their food supply is gone. The light is dim but I have faith at some point, it will shine bright enough and long enough to wake the masses. That is when true change will take place.

You should be concerned about Geithner. We should ALL be concerned. On top of his history of looking the other way, have we not just been treated to some questionable personal behavior indicating some character flaws? Same with his new best friend Schapiro.

Obama has no idea what Wall Street is about, so expecting him to make decisions on its complexities is just “hope.”

——————————————-
Reporter 101,

Re: THE MADOFF LETTER
The “insider” info that would be provided would be extremely valuable, however, as you point out, the challenge would be to keep him protected long enough for trials to bear fruit.

The major market makers on the street NEVER trade without INSIDER information. That’s one that Bernie could be sooo helpful with.

….and you’re quite right about everything “economic” being a ponzi scheme. Money is created through the creation of debt. Debt carries interest. Where does that debt dollar come from?

Here comes out of control inflation, IMHO.

Also, I really enjoyed your “GRANPA look” comment. Very funny. It worked wonders for Bernie.

Who better than Madoff to sit down with Obama and give him a crash course in Wall Street Corruption. If Obama is briefed on these issues there is NO REASON why Obama can’t clean house. The question remaining would be, would our new president of “CHANGE” be willing to undertake such a big challenge? Wishful thinking I suppose. It would be nice to see a president of action and not lip service.

WASHINGTON – The Senate Finance Committee on Thursday cleared the nomination of Timothy Geithner as treasury secretary despite unhappiness over his mistakes in paying his taxes.

The committee approved the nomination on an 18-5 vote, sending it to the full Senate for a vote either Friday or next week. President Barack Obama is hoping for quick approval so that the point man for the administration’s economic rescue effort can begin work.

The committee vote came a day after Geithner appeared before the panel to apologize for what he called “careless mistakes” in failing to pay $34,000 in taxes earlier in the decade, when he worked at the International Monetary Fund.

Geithner paid the back taxes plus interest for the years 2003 and 2004 after being audited by the Internal Revenue Service. But he did not pay taxes he owed for 2001 and 2002, even though he had made the same mistakes for those years, until shortly before he was nominated by Obama last November to be treasury secretary.

The nomination was expected to win approval by the full Senate, with many lawmakers saying that given the serious economic crisis facing the country, the new president deserved to have the services of a man of Geithner’s abilities and experience.

Geithner has been the head of the Federal Reserve Bank of New York for the past six years and was a key participant in decisions made by the Bush administration to deal with the worst financial crisis to hit the country since the Great Depression.

All five of the “no” votes on the committee came from Republicans, including the top GOP member of the panel, Sen. Charles Grassley, R-Iowa. Those voting no said that they did not believe Geithner had been candid in his answers on why he failed to pay Social Security and Medicare taxes. They said they viewed this as a serious error for an official who would head the agency that oversees the IRS.

“I am disappointed that we are even voting on this,” said Sen. Michael Enzi, R-Wyo. “In previous years, nominees who made less serious errors in their taxes than this nominee have been forced to withdraw.”

Even Democrats who voted for the nomination said they were disappointed in Geithner’s actions.

Sen. Kent Conrad, D-N.D., said that in normal times he would oppose Geithner but “these are not normal times.”

The committee acted on an expedited basis, voting shortly after Geithner submitted to the panel 102 pages of answers to written questions committee members had posed after Wednesday’s hearing.

In response to one of those questions, Geithner pledged that the Obama administration would carry out reforms in the $700 billion financial rescue program. The Bush administration was widely criticized for distributing the first $350 billion from the fund with not enough attention paid to ensuring that banks receiving the money would use it to increase lending. Former Treasury Secretary Henry Paulson had earmarked $250 billion of the first $350 billion to go to purchasing stock in banks as a way of bolstering their balance sheets.

In answer to one of the committee’s questions, Geithner said the new administration planned to require that banks receiving government support “provide detailed and timely information on their lending patterns, broken down by category.” Geithner said that public companies will be required to report this information on a quarterly basis.

Last week, the Senate rejected an effort to block release of the second $350 billion from the rescue fund.

During his testimony on Wednesday, Geithner said the new administration would release a comprehensive plan within a few weeks providing details on how it planned to combat the financial crisis and current recession, which is already the longest in a quarter century.

Geithner did not go into detail on what might be in that program but he acknowledged that the administration is considering buying toxic assets now weighing on the balance sheets of many banks.

In addition to deploying the second half of the $700 billion bailout fund, the administration is pushing Congress to quickly pass an $825 billion-plus economic stimulus program of tax cuts and increased government spending to jump-start the economy.

NEW YORK – Former Merrill Lynch & Co. CEO John Thain resigned from Bank of America Corp. Thursday following news that Merrill had moved up its yearend bonuses, paying them just before BofA completed its acquisition of Merrill and sought more government bailout money.

The company gave no reason for Thain’s departure. Bank of America spokesman Scott Silvestri issued a terse statement: “(BofA Chairman and CEO) Ken Lewis flew to New York today to talk to John Thain. And it was mutually agreed that his situation was not working out and he would resign.”

The bonuses to Merrill Lynch executives were also paid out as the company prepared to report a $15.45 billion fourth-quarter loss — a loss that led Bank of America to request and receive $20 billion in government bailout money. Merrill also received bailout funds.

Charlotte, N.C.-based Bank of America has increasingly come under criticism in recent weeks for its acquisition of Merrill Lynch, a deal fostered by the government to save Merrill Lynch on the same day that Lehman Brothers Holdings Inc. collapsed amid the ballooning credit crisis. On Thursday, Bank of America said it knew of Merrill’s plans to more up the bonuses.

“Merrill was an independent company until Jan. 1 of 2009,” Silvestri said. “John Thain decided to pay year-end incentives in December, as opposed to their normal date in January. Bank of America was informed of his decision.”

Bonuses were not paid, though, to Thain and four other top executives — President and COO Greg Fleming, Chief Financial Officer Nelson Chai, President of Global Wealth Management Robert McCann, and General Counsel Rosemary Berkery — who requested they not receive additional compensation.

The bonuses raise the question of how proper it was for executives in a struggling company to be given big payouts even as its soon-to-be-parent was accepting billions of dollars in government money. Bonuses are widely seen in the investment banking industry as necessary to retain top performers, but the fact that they were granted while tens of thousands of jobs were being eliminated across the securities and banking industry raises another question: How necessary were they to prevent defections?

Shares of Bank of America which were already tumbling Thursday, initially fell further after reports of Thain’s departure, but regained some of their ground. Bank of America shares fell 83 cents, or 12.4 percent, to $5.85 in afternoon trading.

“Decimalization” refers to the quoting and trading of stock prices in pennies as opposed to the previously utilized fractions of a dollar. The conversion process started back in August of 2000 and was completed by April of 2001. The main purpose was to simplify matters and to fall into conformity with international practices. So what does this have to do with abusive naked short selling (ANSS)?

There were winners and losers in this transition. Investors benefitted by having the “spread” between the highest bid and the lowest offer tighten up. But there were losers in the process and they were not very happy when their lobbyists and political allies were unable to stop this transition. These were the market makers that made their living off of the “spreads” that were becoming razor thin. Before the transition the tightest “spread” possible was one sixteenth of a dollar or 6.25 cents. The new tightest “spread was a mere penny.

What was the market making community going to do to circumvent this travesty? The abusive market making community took on the mindset that the markets “owe us one”. The publicly-traded market makers with shareholders to please found themselves in a quandary. How were they going to make up for this loss of income? A distinct subset of this group decided to leverage their advantages over investors to make up for this shortfall. The single biggest advantage that MMs have that can be converted into leverage over these nasty old investors benefitting from “decimalization” is their ability to access the exemption from pre-borrowing or making a “locate” before making admittedly naked short sales.

As market insiders they knew very well that our DTCC-administered clearance and settlement system had been illegally converted over to one based on “collateralization versus payment”. They knew that they could easily amass gigantic naked short positions in certain corporations by illegally accessing that exemption from pre-borrowing and making “locates” before making short sales. They realized that the “securities entitlements” resulting from their “failures to deliver” (FTDs) would predictably put the share price of the corporation they chose to attack into a “death spiral”. This is due to the fact that “securities entitlements” are readily sellable despite the fact that they are not legitimate “shares” of a corporation.

This results in the ability of securities fraudsters to literally flood the share structures of corporations unfortunate enough to be targeted for destruction with readily sellable IOUs. In a clearance and settlement illegally converted to a CVP foundation the predictable drop in the share price resulted in the shunting of the investor’s money into the wallets of securities fraudsters despite the fact that they continually refuse to deliver that which they sell.

All the securities fraudsters were asked to do was to collateralize (the “C” in CVP) the monetary value of the failed delivery obligation on a daily marked to market basis. Thus as the share price predictably dropped from this intentional manipulation associated with all of this artificial dilution then so did the collateralization requirements. This then led to what is referred to as the “ultimate paradox” of Wall Street namely that the investor’s funds would unconscionably flow to the seller of basically nonexistent securities that continually refuse to deliver that which they sold. You’ve got to admit it’s pretty good work if you can get it but this self-fulfilling prophecy is accessible only to DTCC participants and their hedge fund “guests” within enough critical mass to “juice” the MMs willing to illegally access this powerful but universally abused exemption. Aiming some of this financial critical mass in the direction of politicians willing to fight for hedge funds to continue to be unregulated and to lobbyists in case legislation is proposed to shut down access to this self-fulfilling prophecy also comes in handy.

Even more importantly this fraud could be perpetrated without incurring any demonstrable risk as the modus operandi basically accessed the self-fulfilling prophecy associated with intentionally refusing to deliver that which you sell in a clearance and settlement system based merely on “collateralization versus payment” (CVP) instead of the congressionally mandated “delivery versus payment” (DVP) involving the “prompt settlement” of all securities transactions.

Most securities scholars hold that “decimalization” wiped out any MMs that obeyed the securities laws. There just isn’t enough trading volume to make a living off of spreads that thin. This gave rise to a form of natural selection referred to as the “survival of the corruptest”. Abusive MMs refused to be “evolved” out of existence.

Back in 2004 and 2005 we saw the “Madoff exception” come into being that basically allowed MMs to naked short sell without worrying about the “uptick rule”. I’ve always seen the “Madoff exception” as a “make up call” associated with decimalization.

A large percentage of abusive naked short selling (ANSS) is associated with MMs illegally accessing the exemption from making pre-borrows or “locates” before making admittedly naked short sales which is accessible only to MMs acting in a “bona fide” market making capacity at the time. A truly “bona fide” MM does indeed inject liquidity into markets by naked short selling into markets characterized by order imbalances involving buy orders dwarfing sell orders. But he also covers that pre-established naked short position by injecting buy orders into markets with order imbalances involving sell orders dwarfing buy orders i.e. as share prices drop. This is when the “not so” bona fide MMs are nowhere to be found which makes their accessing of that exemption fraudulent.

The problem is that in a clearance and settlement system illegally based upon CVP a truly bona fide MM has a financial disincentive to ever cover pre-established naked short positions. Why would he ever do that if he could gain access to the buyer’s funds without ever delivering that which he sold to him earlier? In this rather curious DTCC administered clearance and settlement system selling shares, even when they don’t exist, makes you money but buying them back costs you money.

The solution I’ve recommended for years is to go to a “98% rule”. This involves FORCING a naked short selling MM to place a bid at a level equaling 98% of the share price level at which he is naked short selling for an equal amount of shares. He must also leave that bid in place until the naked short position is closed out. What this does is it FORCES the MM to prove that he is acting as a truly bona fide MM would act. It FORCES him to prove that he is legally accessing that powerful but universally abused exemption. Why is this necessary? It’s because the readily sellable “securities entitlements” that result from FTDs are incredibly damaging to the share price which leads to the aforementioned “self-fulfilling prophecy” accessible to these criminals. Putting human MMs with a vastly superior knowledge of, access to and visibility of our market system onto the “honor system” in the midst of trillions of investment dollars of financially unsophisticated people is insane.

Excepting for truly bona fide market making activity wherein the theoretically bona fide MM is FORCED to prove his bona fides FTDs should be disallowed in our markets. Why? Because once created the party with the mandate to “promptly settle” all securities transactions, the NSCC subdivision of the DTCC, has the audacity to pretend to be “powerless” to buy-in the delivery failures of its abusive “Participants” when they absolutely refuse to deliver that which they sell while accessing this self-fulfilling prophecy begging to be abused.

This policy is a no-brainer in a market system wherein securities entitlements are allowed to be readily sellable. The entire premise of the authors of UCC Article 8 which allowed securities entitlements to be readily sellable was that the NSCC with the congressional mandate to “promptly settle” all securities transactions would “promptly” buy-in delivery failures when its abusive participants refused to deliver that which they sold. What it amounts to is that the NSCC management’s buying in of the delivery failures of its abusive participants/bosses that absolutely refuse to deliver that which they sell is not at all in the financial interests of its abusive bosses and thus they pretend to be “powerless” to do it.

Last night (1/21/09) on CNBC billionaire market guru Ken Langone told Larry Kudlow that “decimalization” might have Madoff go over the top. He mentioned that the trading strategies that Madoff claimed to be using made no sense in the post-decimalization era. This brings me back to the thesis that it is nearly impossible for an honest MM to make a living in the post-decimalization era. MMs have been entrusted with a far superior visibility of the markets than any investor could ever dream of having. The buy and sell orders are literally cueing up right in front of him. Abusive naked short selling and “front-running” opportunities abound. That gigantic self-fulfilling prophecy of our clearance and settlement system being based on CVP is there for the taking. That investor money is just begging to be rerouted into the wallets of abusive MMs and their hedge fund “guests”.

“Decimalization” should have sent market makers the way of the Dodo bird into some sort of an evolutionary “recycle bin”. The argument that MMs inject much needed liquidity into the markets of thinly traded securities rings hollow when these theoretically “bona fide” MMs are nowhere to be found after accessing that exemption when it’s time to cover their pre-established naked short positions when buy-side liquidity is needed. When do you know if a MM legally or illegally accessed that powerful exemption? You don’t know for sure until the next downtick in share price occurs and they are conspicuously absent.

The superior view that MMs were ENTRUSTED with was supposed to have some risk attached to it. For the most part MMs feel that they need not take losses. They know that if they continue to naked short sale a corporation’s shares all day long then EVENTUALLY the weight of all of those incredibly damaging “securities entitlements” poisoning the share structure of the corporation under attack will kick in to rescue them. Whatever happened to the NSCC’s congressional mandate to “promptly settle” all securities transactions? The authors of the ’34 Exchange Act knew all about the damaging nature of readily sellable IOUs; that’s why Section 17 A mandated the “prompt settlement” of all securities transactions.

It looks official. Congratulations
Deep Capture for the BEST BUSINESS BLOG 2008. I appreciate all the work each and every one of you do. Keep on Keeping on. Leave no rock unturned and shine the light bright during your quest to expose those responsible for what will go down in history as the greatest financial crime of all times. Excellent investigative journalism. True American hero’s.

I want to congratulate not only the “reporters” and “journalists” who write the main articles, but also the numerous intelligent and informed commentators who volunteer their talents to contribute to this dialog.

Thanks to all who contribute. And as well to those readers who care enough to follow silently.

BY MARTHA BRANNIGANmbrannigan@MiamiHerald.com
Ricardo Figueredo, a former employee of Bank of America and Barnett Bank, was charged in federal court with bank fraud in a scheme to misappropriate $11 million from customer accounts between the mid-1990s and 2008.

According to the U.S. attorney’s office in Miami, Figueredo, a former assistant branch manager with Bank of America at 401 Lincoln Rd., Miami Beach, was expected to surrender to authorities Thursday morning and was scheduled to make an initial appearance before a magistrate at 1:30 p.m.

According to a criminal information filed in U.S. District Court in Miami, Figueredo dealt with customers who lived outside the United States but kept accounts in South Florida. The prosecution alleges he misappropriated more than $11 million in customer funds for personal investments in Guatemala, Spain and elsewhere and used more than $1 million in customer funds “to support his lavish lifestyle.”

The criminal information alleges he took money from certain customers’ accounts to cover interest payments or withdrawals from other customers’ accounts.

He offered personalized service and sometimes above-market interest rates and persuaded customers to deal with him instead of receiving bank statements or using online banking access to review their accounts, the court papers allege.

Figueredo initially worked at Barnett Bank and continued with the institution after it was acquired in 1998 by NationsBank, which later became Bank of America. He faces up to 30 years if convicted of the bank fraud.

Figueredo couldn’t immediately be reached for comment. A Bank of America spokesman also couldn’t immediately be reached for comment.

R101 I would like to see this fervent reporting and punishment for John Thain who just stole 3to 4 billion dollars in taxpayer moneys to pay his friends at Merrill Lynch and also spend 1.2 million dollars renovating his new office. Going after some Chump who stole a measley 11 million over 28 years is trivial in comparision to what our “Masters of the Universe” are doing to us!!!

Sean,
I totally agree, however, all this shows is there are laws for us and them. (Us) criminals, the chumps as you call it are held to different standards as (them) the Masters. Crime is crime is crime. What happen to justice for all ? Each crime no matter how much money that is fraudulently stolen affects us all in taxes, insurance premiums, mark up of pricing of consumer goods. Each crime involving theft ultimately finds it way to our pockets. One thing that is for sure, if you are going to do the crime do it big because there are loopholes for that also.

After all, the logic, or rather the gun to the head of the taxpayer by John Paulson, was that the economy would vaporize if we didn’t take taxpayer money and give it to Wall Street banks and insurance companies, to, er, lend, or to relieve them of the burden of having to carry the toxic paper they created on their books any longer.

At the time, I said that was clearly a lie, and all this would be is a redistribution from the treasury, to the Wall Street buddies of Paulson’s who got us into the mess in the first place.

Now we discover, gasp, that Merril took $10 billion of our money (from TARP – we don’t know how much more they have gotten through the Fed, because the Fed refuses to disclose that, or what collateral they took in return), and paid out $15 billion in bonuses, even as the company went BK in all but signing the papers.

And nobody will stop them, or do anything. Oh, there may be some fist shaking and pretend anger, maybe a hearing or three, but in the end, Wall Street got our money after screwing the world by getting the global banking system pregnant with toxic crap (and keeping the massive profits made from doing so), and instead of using it to shore up balance sheets, put it directly in their pockets without the least bit of artifice or pretense.

You paid your taxes/worked for 7 or more months for the government, and Wall Street took your money, the fruit of your labor, and walked away with it, even as the new/old administration demands far more sacrifice from you – i.e. more of your money, and your children’s money.

This was in fact predicted, by among others, your humble bunny. It isn’t at all a surprise. I could see it coming within seconds of hearing the demand for TARP – blackmail, basically, by Wall Street. Give us the keys to the treasury, or the world will end. Simple extortion.

And it worked. It worked. They won, you lost. Game over.

Oh, sure, you will need to part with far more of your retirement and your kids’ legacy before this is over, as the goal is to rid you of all that material garbage cluttering up your life so you can focus on your spiritual betterment. Best to allow those with serious experience selecting the best Pomerol or the ideal private jet to hit Saint Tropez from NY deal with the big bucks – you would just screw it up. In fact, given that 60+% of the population is obese, it probably isn’t such a bad thing for it to go on a diet, which it will have to in order for the too big to fail banks and insurance companies to pay out their big bonuses this year, too.

Think it was questionable when AIG got so much money from us, when the big beneficiary was really Goldman due to their exposure to credit default swaps? Think it was all a transparent lie that Merril took ten billion of TARP money, only to pay out fifteen in bonuses? That money was taken because the company was on its last legs, ready for the oxygen tent….but apparently, not really, as they could have just cut the bonus pool down to $5 billion and not required any of your money. But that wasn’t how it played, is it?

You will read angry articles about it, no doubt, but at the end of the day, your money is gone, and they got it. Just as predicted.

Because you are the food. They run things. Now shut up, work harder, cinch your belt a few notches, and get ready to pay a bunch more, because this is how things really work. The gloves are off, and you aren’t even going to get a kiss this time. Just lay back and think of England, as you don’t really have a choice. Now it is just blatant.

And if you think the new Treasury Secretary, who ran the NY Fed while it allowed record delivery failures by these same banks, and has set up special purpose entities (a la Enron, or Refco) to circumvent the Constitutional ban from the Fed doing lending to anyone but other banks, is going to do anything but assist the bad guys in looting the remainder of the nation’s worth, think again. The hearings conveniently ignored the massive delivery failures in government bonds (which forces the prices lower, so it has to issue even more debt for the same capital) he allowed, and didn’t even mention the off balance sheet entities created by the Fed to violate their charter, and you won’t hear any of the “deeply concerned” politicians mentioning any of that – it’s not part of the theater, you see. An easily fixed tax issue was instead the flavor du jour to keep the masses distracted. And again, it worked.

This is nothing more than the wholesale theft of the nation’s wealth by Wall Street and the banking cartel that it is in bed with. And it is going splendidly – now I am reading more and more that it could require $3 trillion or more to “right the ship”. Or pay bonuses and guarantee further polarization of wealth in the top tier of those running things. Same difference.

This is why our efforts need to be aimed at educating the masses (including the cops) as to how these frauds are being perpetrated. The learning curve of this particular fraud is very steep and we need to help these guys traverse this learning curve more rapidly and efficiently.

Democrat Charles Schumer of New York and Republican Richard Shelby of Alabama said their bill would help restore investor trust in the U.S. financial system by spending $110 million to hire new investigators and lawyers.

“Fundamentally, our current economic crisis is one of confidence, which underpins our entire financial system. This foundation of trust has been badly shaken by greed, but is further eroded by fraud,” Shelby said in a statement.

Prosecution of financial fraud fell by 48 percent from 2000 to 2007 because of budget and hiring freezes at many U.S. attorney offices throughout the country, the senators said.

The $110 million sought in the bill could be offset by a resulting increase in fines by the Securities and Exchange Commission and restitution from criminal cases launched by the new law enforcement officials, they said.

The legislation would authorize $80 million for 500 new FBI agents, $20 million for 100 investigators at the Securities and Exchange Commission, and $10 million for 50 new assistant U.S. attorneys.

Shelby is the top Republican on the Senate Banking Committee, and Schumer is the chairman of congress’ Joint Economic Committee. (Reporting by Julie Vorman, editing by Gerald E. McCormick)

Foreigners purchased trillions of dollars worth of US treasuries through 17 shaky Wallstreet firms and the Wallstreet firms took the money, paid out neglible interest and told the purchasers, “sorry, we couldn’t get delivery”.

This is a crime on so many levels. Besides everything else, the interest rate is set by supply and demand, so the extra supply directly rips of the taxpayer.

Do you think the foreign investors would have knowingly accepted the same interest rate from a house of cards Wall Street firm with no collateral as they expected to get on a US treasury, collateralized by the whole country?

It’s like they aren’t even embarrassed. They are setting up meaningless fines for fails, where the fine plus interest is still a fraction what those firms would have had to pay to borrow money any other way.

The very term “naked short selling” (NSS) has unfortunately been a great aid to the perpetrators of abusive naked short selling (ANSS) frauds. It has allowed these securities fraudsters to proffer arguments intentionally clouded with distractive issues that are not germane to the reforms needed to address this particular form of a “fraud on the market”. By way of review: A short sale is the sale of a security that the seller does not own or any sale that is consummated by the delivery of a security borrowed by, or for the account of, the seller. A naked short sale is the sale of a security that the seller neither owns nor made a successful effort to “pre-borrow” or “locate” shares for delivery on settlement date. A naked short sale typically but does not always result in a “failure to deliver” (FTD) i.e. Type 2 and Type 3 ANSS frauds involving “free-riding” types of crimes.

There are two vastly different types of “naked short selling”-abusive and legitimate. “Abusive naked short selling” (ANSS) is a form of pre-meditated share price manipulation downwards (a fraud) that involves intentionally refusing to deliver securities sold while often utilizing the DTCC management’s default assumption that all delivery delays or failures are associated with “legitimate naked short selling” (LNSS) by bona fide market makers until proven otherwise. The trouble with this “garden variety” of ANSS (Type 1) is that by the time you can “prove otherwise” the damage is already done and nobody within the entire clearance and settlement system is willing to reverse the intentional dilutional damage sustained by the corporation targeted for attack via “buying-in” the delivery failures causing the dilutional damage.

One need to look no further than the 2002 research of Evans, Geczy, Musto and Reed revealing that only one-eighth of 1% of even “mandated” buy-ins on Wall Street are ever executed. One of the unwritten laws on Wall Street is that you just don’t forcibly buy-in the delivery failures of a fellow DTCC participant “fraternity brother” without risking retaliation. There is plenty of investor money to steal as long as nobody “rocks the boat”.

Later we’ll review how the NSCC actually “bribes” its participants that bought shares that weren’t delivered NOT to buy-in the associated delivery failures. They do this by allowing the buying firm that didn’t get delivery of that which its client purchased to use the client’s money to earn interest off of and to count toward its all important “net capital reserves” IF it chooses NOT to order a buy-in.

Further to this the NSCC forces its participants that choose to execute a buy-in on behalf of their client that didn’t get delivery of that which it purchased to file a “Notice of intent to buy-in” with the NSCC. Upon receipt of this notice the NSCC can then search other avenues to circumvent the buy-in which is obviously not in the financial interests of its abusive participants that refuse to deliver that which they sell. These and other similar policies help to explain the aberrational nature of the Evans, et. al. findings. After all, forcing the buy-in of a DTCC fraternity brother’s failed delivery obligation would be an example of “rocking the boat” that might interfere with the corrupt “status quo” on Wall Street. As we’ll soon learn every single DTCC participating “market intermediary” stands to make an absolute fortune (equal in amount to the losses of less financially-sophisticated investors) when the share structures of U.S. corporations are intentionally poisoned with massive amounts of delivery failures that have successfully evaded being bought-in.

All of the DTCC “participants” acting as market intermediaries (market makers, prime brokers, registered clearing agencies, etc.) financially benefiting from these thefts as well as the DTCC management will chime in as if on cue and in perfect harmony that they are “powerless” to reverse the damages caused by failures to deliver by executing buy-ins; “it’s just not our job”. With this “attitude” being adopted after the occurrence of a delivery failure being the case the regulatory objective would naturally be to forbid delivery failures except perhaps in the case of those associated with truly bona fide market making activity.

Unfortunately the crystal clear history of the SEC is to act in a “reactionary” manner AFTER the infrastructures for fraud have been well established instead of acting in a “preventative” manner. There are currently OTC derivatives trading on Wall Street that the SEC has no clue in how to value or how to quantify the associated “systemic risks” being borne by all U.S. citizens whether investors or not.

The “Bank for International Settlements” (“BIS”) estimates that there are currently $1.28 quadrillion worth of outstanding “derivatives” not counting those associated with abusive naked short selling and the commodities markets. Later we’ll see how the “securities entitlements” procreated by failures to deliver (FTD) are actually a form of a “derivative”.

There are types of ANSS that don’t necessarily involve failures to deliver as seen in “garden variety” (Type 1) ANSS frauds. Two of these are “intra-trade day” ANSS frauds (Type 2) and “intra-settlement cycle” ANSS frauds (Type 3). These involve “pulse-like” attacks of naked short selling followed by covering. These “pulses” of naked short selling are usually designed to either trip stop loss orders visible only to these “market intermediaries” and not the investing public or to induce panic selling.

Note that the superior visibility of the playing field on Wall Street entrusted to DTCC participating market intermediaries was forbidden to be used as leverage over the investors to whom they owe a fiduciary duty of care. In the case of “intra-settlement cycle” ANSS the 4-day period between the morning of trade day (“T” or “T+0”) and the close of settlement day (“S” or “T+3”) provides an enormous window of opportunity to manipulate share prices downwards in an effort to make even the most stoic of investors panic and sell their shares to circumvent potential disastrous losses that may lead to changes in lifestyle. This is especially true in a market in which the “uptick rule” has been unconscionably removed.

These Type 2 and Type 3 attacks are especially effective against the elderly on a fixed income who are less able to incur the risk of their investments completely “falling out of bed”. These ANSS attacks attempting to get risk averse investors to panic sell their invested in securities are referred to as “shaking the tree” attacks to flush out the weakest “apples”.

The abusive naked short sellers participating in Type 2 and Type 3 attacks then typically buy these ultra cheap shares resulting from panic sales to cover their short term naked short positions. The flexibility intentionally built into the T+3 settlement cycle laws for streamlining purposes allows for these acts of fraud to occur. Note that in the current absence of an “uptick rule” these “pulse-like” attacks serially knocking out bid after underlying bid will obviously become more popular due to the enhanced ability of these criminals to manipulate the share price to a level low enough to induce the panic sale. Recall that these DTCC “participants” acting as “market intermediaries” have full visibility of what are referred to as “trailing stop loss orders” that many investors use to lock in gains or prevent large losses.

Without the protection of an “Uptick rule” abusive market intermediaries can spot and then “trip” stop loss sell orders by knocking out bids in a serial fashion. Once “tripped” the stop loss order results in another wave of selling which might “trip” yet more underlying stop loss orders as well as induce yet more panic selling. Once again we see the ability to easily place the share price of an issuer targeted for attack into a “death spiral”. The lack of an “uptick rule” on a playing field wherein these “market intermediaries” have a vastly superior knowledge of, access to and visibility of the playing field is unconscionable.

The removal of the 70-year old “uptick rule” by the party with the congressional mandate to provide “investor protection and market integrity” (the SEC) in the midst of a worldwide demand for abusive short selling reform is equally unconscionable and diagnostic of the presence of regulators and self-regulators totally “captured” by the financial interests of those that they should be regulating. A quick review of the trading data of those parties lobbying the most aggressively for the removal of the “uptick rule” will undoubtedly confirm this diagnosis. Markets that are literally falling out of bed while “drowning” in theoretically beneficial excess “liquidity” do not need more sell side “liquidity” injected into them.

Due to the fact that not all ANSS frauds result in FTDs it’s critical that unconflicted regulators not totally focus on the presence of failures to deliver (FTDs) as being necessary to diagnose the presence of ANSS frauds. This is one of the biggest shortcomings of the Reg SHO “threshold list” concept. As noted, the rescission of the 71-year old “uptick rule” (1938) was associated with an aggressive lobbying effort by the Wall Street community directly benefiting from these thefts at a time when the worldwide investment community was in a total uproar over abusive naked short selling crimes.

An ill-advised “Pilot study” done by the SEC when markets were advancing upwards somehow came to the conclusion that the 71-year old “uptick rule” was not all that effective. As the markets recently reversed their course and headed downwards the lack of an “uptick rule” allowed securities fraudsters to mercilessly knock out bid after underlying bid of especially banking corporations in the midst of a crisis of confidence in an industry based on confidence. The resultant drop in share price further exacerbated the crisis of confidence which led to a domino effect that hastened the demise of the corporations targeted. Legitimate short sellers of borrowed securities do not knock out bid after bid in a serial fashion. They want to sell shares at higher levels not lower levels.

What’s interesting about this particular crime is that the prognosis for the success of the bet being placed by the unknowing buyer of the nonexistent shares being “sold” is instantaneously diminished the second the seller refuses to deliver that which was sold. The methodology of placing the bet directly influences the outcome of the bet. It’s like betting on a 2-horse horserace and placing your bet and then being allowed to secretly tie a 100 pound weight on the opposing horse. This has to do with the readily sellable “securities entitlements” that the purchaser of nonexistent shares is “pacified/hoodwinked” with on his monthly brokerage statement.

The seller of the nonexistent shares then completes this “bait and switch” fraud essentially by secretly changing what the purchaser thought was an equity-based purchase of the “shares” of a corporation into what can only be described as some type of mysterious undated futures contract (a “derivative” transaction) that in our current clearance and settlement system amounts to no more than a half-hearted pledge to “eventually” deliver that which was sold in the highly unlikely circumstance in which it is forced to unless of course the corporation invested in should die an untimely but greatly intended death in the meantime.

Now that corrupt NSCC policies like those cited earlier have bought some time the thieves selling the nonexistent shares then typically do everything in their power to hasten the demise of the corporation involved by predictably sending its share price into a self-propagating “death spiral” so that “eventually” doesn’t occur.

The typical modus operandi is to literally “drown” the company targeted for an attack with “liquidity” that is theoretically being provided by and being advertised by these market intermediaries as being beneficial to the purchasers of shares. Unfortunately this “liquidity” being generously extended amounts to paying the price of admission onto an “elevator” that has been illegally pre-programmed to only go in the down direction when the intent of the purchaser was to clearly go in the up direction.

All of this occurring in the dark despite the securities laws clearly stating that the DTCC is responsible to make sure that all securities transactions must “promptly settle” i.e. that being sold must promptly be delivered “in good form” in exchange for the buyer’s funds makes one a little curious as to how and when did the train fall off the tracks in our DTCC-administered clearance and settlement system. The phrases “promptly settle” or “promptly deliver in good form” have no place being in the same sentence as “a half-hearted pledge to eventually deliver that which was sold unless of course the corporation involved should die an untimely but greatly intended death in the meantime”.

From the point of view of the corporation being targeted for destruction a clearance and settlement system with integrity wouldn’t allow the would be purchasers of its “shares” or “units of equity ownership” to resell them UNTIL that which they purchased was delivered “in good form”. Otherwise the fact that that which was purchased never did get delivered becomes a moot point when the nonexistent shares that obviously never got delivered are sold to the next unknowing victim.

A policy involving illiquidity until delivery was achieved would make this “bait and switch” so obvious that nobody would participate in our markets because nobody would put up with the resultant extended periods of illiquidity caused by those refusing to deliver that which they sold. As we know investors purchasing “restricted” securities in “private placements” are reimbursed for their well-advertised period of illiquidity by receiving sometimes deep discounts to existing market share price levels. It’s interesting that in our markets for all intents and purposes there is no such thing as Rule 144 “restricted” securities when you can pre-sell these securities and just sit on the failed delivery until the DTCC buys you in which won’t happen because of their policies and their pleading to be “powerless” to do so. Recall that buy-ins would qualify as “rocking the boat” which might endanger the status quo involving markets being essentially “rigged” in favor of those DTCC participating market intermediaries and their hedge fund “guests” with enough critical mass to establish and “collateralize” massive naked short positions without fear of being bought-in. At the end of this text I will list out approximately 87 suggestions I have to “unrig” these markets.

A desperate penny stock company approaches a crooked investor to raise $1 million because it is on the verge to a cure to cancer, but generating negative cash flow because it is in an R&D stage.

The stock is trading at $5. The investor agrees to to invest, but says he needs a 25% discount to market because of the restriction and a warrant at a $5 strike price to purchase another million dollars worth of stock within the next year (so the company is obliged to issue him $2 million worth of stock).

He asks for a letter of intent where they show him their financials and he is given 90 days to exclusively invest (they can’t go elsewhere).

The next day, he starts naked shorting aggressively, hitting every bid, day after day until he’s raised $7 million at an average price of say $1 per share.
The lower he pushes the price, the more the buyers flock in and it seems so ridiculously undervalued and cash flows heavily at his asks. Investors proudly purchase what they think is a $5 stock for pennies.

He comes back to the company after hammering the stock to $.20 (the due diligence period) and says he still wants to invest (he’s their friend, the knight in shining armor, investing in their precious “deal”), but he needs to do it at $.15 (25% discount) and a $.20 warrant

They issue him 6.7 million shares and 5 million warrants in exchange for $1 million.

Now, he’s covered all but 300,000 shares of his original short and he’s left with $6 million and 5 million warrants. Even though the 144 stock is restricted, his brokerage will accept it in lieu of cash to back his naked short position 100% until it becomes free trading. He doesn’t have to put any cash up at all to back the naked short position.

Now he’s in an enviable position. He needs 300,000 of the warrants to cover his remaining short, so he’s left with:

$4.4 million cash
$4.4 million warrants at $.20

So, he has choices. By the time the warrants are exercised, he’s only given the company $1.6 million and if he thinks the company is under capitalized, he could use those warrants as an insurance policy in case it runs and short aggressively, offering the company more money at say a nickel when it falls that far.

Alternatively, if the company is performing well, he’s sitting on 4.4 million warrants. If he leaves the company alone and let’s it recover back to $5, he makes another $4.80 per share profit or $21.12 million.

Because he believed in the company and gave them money even though their stock was in a free fall, insiders probably trust him and give him all their secrets on a daily basis and he can go long or short on a riskless basis.

Either way he makes money, without ever putting up a dime of his own money for more than a couple months.

david n,
you just described the typical “PIPE” (private investment in public equity) scenario. Before Reg SHO a “PIPE” financier that bought a convertible instrument was technically the “owner” of the common shares they could convert into right from the get go. Thus they could sign a financing deal and promise not to “short sell” the securities. They would dump all of their post-conversion shares at the onset to “lock in” a profit due to the usually deep discount. They weren’t technically “short selling” the shares because they were the legal “owners” at the time. The deep discount was granted because of the 1 or 2-year lock which became a 1 or 2 hour lockup thanks to DTCC policies.

In Reg SHO we pushed hard to not allow PIPE financiers and others to be considered the legal owners UNTIL they converted their shares or UNTIL a warrant holder exercised his warrant or UNTIL …The SEC went for it to their credit!

The PIPE financiers had their own “groupies” with their ear to the ground hoping to hear about upcoming PIPE financings. These guys would naked short sell the shares to death before the financing just because they knew that after a PIPE financing the share price usually tanks perhaps 60% due to what the financiers were up to. I saw a study of I think it was 431 PIPE financings. Not one corporation’s share price was up after 6 months and most companies were dead within 12 months. This is one of the many “ancillary” frauds surrounding the baseline fraud of abusive naked short selling.

These “groupies” were pretty clever really. They had a symbiotic relationship with the PIPE crooks because they would knock the PPS down which would allow the PIPE crooks to cut that much better of a deal.

In many cases I’ve seen the PIPE crooks had presold the shares they could convert into before ever approaching the company in need of financing. Can you say “big cajones”? For a while even the rumor of a financing could take away 75% of your market cap.

We’re winning and as we win, the thieves will look to protect themselves. The media that were paid to lie will be the first to sell out.

When Jane Public and Joe Sixpack are looking for reasons why their retirement savings were stolen by Wallstreet, this picture could look bad on the front page. Speaking of which, feel free to send it to your local newspaper and encourage them to print it.

ISSUES REGARDING THE “ASSUMPTION OF RISK” IN ABUSIVE NAKED SHORT SELLING (ANSS) FRAUDS

Fair markets mandate that those taking both “long” positions on stocks and those taking “short” positions on stocks must each assume demonstrable risk in placing their bets. If both sides do not take demonstrable risk then the market is “rigged” in favor of the party assuming the least amount of risk.

In our current DTCC-administered clearance and settlement system there is a self-fulfilling prophecy accessible to the DTCC participating market intermediaries and their hedge fund “guests” that voluntarily choose simply not to deliver shares that they sell. In a clearance and settlement system unconscionably based on “collateralization versus payment” (CVP) instead of the congressionally mandated “delivery versus payment” (DVP) this self-fulfilling prophecy is easily accessed and the more shares you sell and refuse to deliver the greater will be your rewards (the money of the investor’s taking “long” positions) and the sooner you will be able to access these rewards.

When you illegally access self-fulfilling prophecies made available by DTCC policies you assume no risk. Abusive market makers (MMs) that sell nonexistent shares all day long while pretending to be acting as “bona fide” MMs while refusing to ever cover these naked short positions assume no risk. For the most part abusive MMs refuse to ever take losses and therefore there never was any risk assumed. Why would they take losses when DTCC policies make it insane to ever take a loss?

Recall that the brokerage firms representing the buyers of shares are essentially “bribed” not to “buy-in” the delivery failures associated with their clients’ buy orders. This is despite the fact that they just took a commission while acting in an “agent” capacity. The “bribe” involves allowing the brokerage firm of the investor buying shares to utilize the investor’s funds to earn interest off of and to count towards his net capital reserves UNTIL delivery occurs.

That’s a pleasant thought sending a brokerage statement to your client “implying” that what she or he purchased was delivered and is being “held long” all while knowing that it never got delivered and you, the buying b/d, are earning interest off of this intentional misrepresentation or false pretense. Legally a “misrepresentation” or “false pretense” is defined as: “the statutory crime of obtaining money [like the interest earnings cited] or property by making false representations of fact”. Note that if an investor knew what was going on she or he obviously wouldn’t cut the check UNTIL delivery occurred especially if she or he realized that any failed delivery gives rise to a share price depressing readily sellable “securities entitlement”. In other words she or he was buying “damaged goods” and their purchase order was inflicting the damage which was being incurred by not only this investor but all predecessor investors in that stock. Who was providing the damage? The party that refused to deliver that which they sold.

One of the givens in the markets is that all waves of buying eventually have to come to an end. Abusive MMs know this and this emboldens them to simply naked short sell into pretty much each buy order they see. If they don’t do it then the chances are that some other crook on Wall Street certainly will. After all, in a clearance and settlement system based upon CVP and the resultant self-fulfilling prophecies it’s free money. Not only will the wave of buying end but the readily sellable “securities entitlements” piling up from the failures to deliver racked up during the naked short selling into the wave of buying will be there to force the share price downwards.

It just takes time for these incredibly damaging “securities entitlements” to do their thing and if no self-regulatory organization (SRO like the DTCC) or regulator like the SEC ever forces you to cover preexisting naked short positions then you have all of the time in the world. Waves of buying don’t scare abusive MMs with gigantic preexisting naked short positions; they crave them. Behind each buy order is an unknowing investor that will receive a monthly brokerage statement “implying” that what he paid for got delivered and is being “held long” somewhere. Who’s going to ever know the difference?

The abusive MMs know that the wave of buying will eventually end and then the weight of all of those readily sellable “securities entitlements” generated will predictably manipulate the share price of the corporation under attack downwards which will result in the funds of these unknowing investors flowing into the wallets of the abusive MMs and their hedge fund “guests” despite their constant refusal to deliver that which they sold.

How can this be? In a clearance and settlement system illegally based upon a foundation of CVP then that’s just how it is. The delivery of that which you sell has been illegally “disconnected” from gaining access to the investor’s funds. That’s why Congress mandated our clearance and settlement system to be based upon “delivery versus payment” involving the DTCC making sure that all securities transactions “promptly settle”. “Settlement” is defined as “delivery versus payment” wherein “payment” is dependent upon “delivery”. This is how things work in every other business on the planet why shouldn’t it occur on Wall Street? The problem is that the immense amounts of greed on Wall Street has resulted into the morphing of our clearance and settlement system into a foundation that best looks after the financial interests of the DTCC participating “market intermediaries” and their hedge fund guests.

Where is the bilateral risk being assumed by both those taking “long” and “short” positions that prevents markets from becoming “rigged”? There isn’t bilateral risk in a system with self-fulfilling prophecies accessible only to the intermediaries to trades and their hedge fund “guests”.

Whatever happened to this concept of doing business as a “corporation” with policies like “one share, one vote” and their being a finite amount of shares “outstanding” whose number was readily available to all prospective investors? Unfortunately when these “corporations” chose to become publicly traded the market intermediaries to this trading decided to hijack the entire concept to align more with their own financial interests.

UCC-8 is the body of law that unfortunately for investors made the “securities entitlements” resulting from failures to deliver (FTDs) readily sellable. The assumption of its authors (The American Law Institute and the National Conference of Commissioners on Uniform State Laws) was that the obvious dilutional damage and its share price depressing effect from these readily sellable “securities entitlements” resulting from failures to deliver would be minimal because the lifespan of any FTD would be minimal. Why? Because the NSCC subdivision of the DTCC had a congressional mandate to “promptly settle” all securities transactions and the SEC had the congressional mandate to provide “investor protection and market integrity”.

The presumption of the authors would be that if it became obvious that the sellers of shares had no intent to ever deliver that which they sold then either or both of these two self-regulatory (NSCC) or regulatory (SEC) bodies would buy-in the delivery failure “promptly” so that the “prompt settlement” of all securities transactions could be achieved as mandated by Section 17 A of the ’34 Exchange Act.

As history has clearly shown us the presumption of the authors of UCC 8 was clearly in error. This has given rise to the pandemic nature of these frauds associated with abusive naked short selling (ANSS).

The authors of UCC 8 did put in a “failsafe” device, however, in the form of UCC Section 8-104. It basically states that the creation of “securities entitlements” is OK but the number of “securities entitlements” in the system when added to the number of shares a corporation has “outstanding” can NEVER exceed the amount of shares that a corporation’s “Charter” or “Articles of Incorporation” states as the maximum shares that the corporation is “authorized” to issue.

Let’s assume that “Acme” Corporation has 500 million shares that its board is “authorized” to issue and that 495 million are already “issued and outstanding”. Let’s further assume that there are 80 million “securities entitlements” currently in existence at the NSCC that have resulted from the failed delivery status of 80 million shares. These “securities entitlements” are represented as “long positions” in NSCC “C” sub accounts.

Technically Acme is in a state of “Overissuance” which is forbidden by UCC 8-104 (2) which defines a forbidden “Overissuance” as “the issue of securities in excess of the amount the issuer has corporate power to issue”.

The number of shares that a corporation is “authorized” to issue represents an investor protection measure. Any prospective investor can look at that number in between regulatory filings and be confident that the corporation being studied does not have “securities entitlements” in existence over the amount represented by the number of shares “authorized” minus the number of shares currently “outstanding”. Right? Wrong!

The NSCC as well as the SEC have gone out of their way to remove this form of “investor protection” from the system as they refuse to quantify and publicly report the number of share price depressing “securities entitlements” in existence within the share structure of any given corporation. Why don’t they? They can’t without giving away the corrupt nature of the DTCC-administered clearance and settlement system illegally converted to a foundation based upon mere “collateralization versus payment” or “CVP”. Besides it wouldn’t be consistent with the financial interests of their abusive “participants” sitting on massive levels of FTDs that might be subject to being bought-in should this fraudulent behavior be revealed to the investing public.

What we’re left with is the congressionally mandated provider of “investor protection”, the SEC, actually acting as the “remover” of investor protection and the party congressionally mandated to “promptly settle” all trades acting as the party facilitating the avoidance of having trades “promptly settle”. Well isn’t that special?

Earlier we saw how the NSCC was “powerful” enough to “discharge” the delivery obligations of its abusive DTCC participants that refuse to deliver that which they sell while acting as the “central counterparty” (CCP) to all trades in our clearance and settlement system based upon the legal concept of “novation”. After “discharging” these delivery obligations they promised to “assume” them and to “execute” on them. In reality after “discharging” them they had the audacity to plead to be “powerless” to “execute” on the delivery obligations that they recently “assumed” as the CCP.

Now we see this same NSCC management “powerful” enough to create “securities entitlements” right and left because of UCC-8 but all of a sudden pleading to be “powerless” to execute the “investor protection mandate” involving preventing “Overissuances” provided by UCC 8-104(2). Why? Because it’s not in the financial interests of its abusive “bosses”/participants at the NSCC that are piling up these delivery failures while accessing this self-fulfilling prophecy of shunting the investment funds of unknowing investors into their own wallets by simply refusing to deliver that which they sell. This behavior is referred to as the illegal “cherry picking” of laws.

i stand up,
This particular book is done except for some last minute clean up. It’s my 8th unpublished book on the subject. You have to remember I got a 29 year head start on you guys! I’ve got to tell you how good I feel now that you and Patrick and all the guys are here. I finally sense some traction. I was planning on posting it here in 5-page pulses so as not to tie up too much bandwidth. There is so much going on right now that I’m constantly adding to it and deleting from it. These are not ordinary times!

1) How many corporations are currently in the forbidden state of “Overissuance”?
We’ll never know until the DTCC, SEC, the exchanges and other SROs provide us with the number of FTDs they have visibility of. This would include those held in “ex-clearing arrangements”, those at the DTCC, those at trading desks, those held at clearing firms, those held offshore, etc.

2) How does a prospective investor know if the company he is doing due diligence on is currently in a state of “Overissuance” and perhaps has already been preordained to die an early death? He can’t until the SROs and regulators reinstall this “investor protection” measure and start revealing this information that is of a very “material” nature in regards to the prognosis for any investment made in that corporation. Until that time all investors have been relegated to buying a “pig in a poke” in order to cover up the corrupt nature of our clearance and settlement system that has been “hijacked” by the financial interests of those that administer it.
3) Just how large are the preexisting naked short positions out there now? Naked short positions are accretive by nature and thus it depends on how long the corporation has been under attack and the intensity of the attack. The longest one I’ve studied is 12 years. As previously stated an abusive naked short seller would be an idiot to voluntarily cover his naked short position and there is nobody within the system that will force any covering. The size of preexisting naked short positions would be expected to be proportionate to the ease in pulling off these frauds and indirectly proportionate to the punishment rendered should one get caught. As far as the ease of committing the fraud what could be easier than refusing to deliver that which you sell? As far as the punishment once “busted” how much meaningful deterrence is provided by getting fined $10,000 for stealing $50 million?
4) Does a management team have the right to know if the corporation it is managing is in a state of “Overissuance”? Of course they do. Not only that they have a fiduciary duty of care to their shareholders to do something about it.
5) Are there measures a management team can employ to address these frauds? There is a vast variety of measures to employ that cannot only address day to day naked short selling frauds as they occur but there are methodologies that can reverse past damages. Now that the level of greed on Wall Street is being exposed daily and the markets are plunging downwards people are finally taking action. When markets go up in price nobody seems to care but when lifestyles and retirement plans are directly affected then people become more active. The very first move is to get EDUCATED as to the nature of these crimes and their heinous nature.
6) Is the abusive naked short selling arena as scary as what we read about in regards to “derivatives” like “credit default swaps” and all of the systemic risks associated therewith? Yes, the “securities entitlements” procreated by “failures to deliver” are “derivatives”. They are not legitimate “shares” of a corporation with attached voting and other rights.
7) Are our markets essentially “rigged” from the get-go? The DTCC policies and the refusal of the SROs and regulators to deal with this crime wave have essentially created markets “rigged” to go downwards. This benefits those financial behemoths that have the critical mass to establish and then collateralize immense naked short positions. They can then access the self-fulfilling prophecy involving the mere refusing to deliver that which they sell leading towards the predictable shunting of the unknowing investor’s money into their wallets even though they continue to refuse to deliver that which they sell.
8) When is this ever going to end? It will end when the SROs and regulators FORCE those that refuse to deliver that which they sell to do so. This is done by mandated “buy-ins” at a time when it becomes obvious that the seller of shares has no intent whatsoever to deliver that which he sells. These mandated buy-ins will then provide the truly meaningful deterrence needed to dissuade future crimes. The mindset of the SROs and regulators needs to be that our current clearance and settlement system has some faults that have resulted in self-fulfilling prophecies for those that refuse to deliver that which they sell and it’s time to finally do something about it. Let’s hope Mary Schapiro is up to the task!

She needs to appreciate the fact that the current SEC instead of providing “investor protection” is often guilty of just the opposite. Naïve investors that assume that there is a tough regulator protecting them from abusive naked short selling abuses are getting hoodwinked into buying shares of investors that due to massive numbers of preexistent “securities entitlements” may have already preordained to die an early death. Lazy or inept securities cops are worse than no securities cops. As we saw in the case of “Overissuances” and the “investor protection” being provided by UCC-8-104 the “investor protection” intended by this law has actually been removed by the actions of the SEC and the DTCC. If you can’t follow your congressional mandate to provide “investor protection” then at least don’t remove what little there is still out there.

There are reports of Madoff’s victims filing class action lawsuits against the SEC.

This morning NPR radio aired an interview one of Madoff’s victims.

Every common American citizen with a 401K plan is stunned with the loses they have seen firsthand in their retirement accounts, and many SMELL Wall Street Gangs and “hedge fund” corruption at the heart of this.

The SEC publicly acknowledged the problem with Naked Shorting last September with a press release and the enactment of temporary rules to stop it.

Madoff, a hedge fund guru, was arrested for a reported 50 Billion Dollar Ponzi Scheme. And we have his “Bald Faced Lies” recorded on YouTube about how it is impossible for his very crimes to ever occur on Wall Street.

Another hedge fund manager in Florida has disappeared and there is NO MONEY left in the hedge fund account he helped manage.

Reportedly, Hedge Fund clients are seeking to pull their money out.

A Large Bank in Europe is demanding that the hedge funds they deal with become more accountable or they will pull their money out.

The time is ripe for “educate” congress, the president, law enforcement, and the American people.

I cannot speak for DeepCapture.com, but I would suggest that those in charge create Deep Capture Education Center page where there would be LINKS to your book(s) , the Deep Capture Articles, and any other important articles that help people understand the immense crimes perpetrated against the American people. It could be something like a table of contents sorted in various ways – by author, by title, by subject. A search engine would also be useful.

Also I would hope that the other Blogs and websites that expose these crimes would also add LINKS to your book(s) and articles exposing these Wall Street crimes.

The time is ripe for exposing the criminals on Wall Street, as criminals.

DTCC: FROM FEB. 28, 2000 TO AUG. 1, 2000 DALECO RESOURCES CORP OR DALECO RESOURCES INC. TRADED ACTUAL SHARE VOLUME OF APPROXIMATELY 70,000 COMMON SHARES WHILE DELISTED TO THE PINK SHEETS FROM THE OTCBB MARKET. IN 1996 & 1997 DALECO RESOURCES CORP OR DALECO RESOURCES INC. HAD APPROXIMATELY 7,000,000 COMMON SHARES SOLD “NAKED SHORT”. THESE “NAKED SHORT” SALES WERE COVERED BY THE ACTUAL TRADING OF APPROXIMATELY 70,000 COMMON SHARES PLUS TWO EXTERNALLY ADDED ZEROS 3 YEARS LATER FROM FEB. 28, 2000 TO AUGUST 1, 2000!!! DID THE DTCC AID DALECO IN THIS SCAM OF THE REGULATORY SYSTEM FOR PUBLIC EQUITIES?

>I had them remove the extra digits.
> Yahoo should have it corrected by this afternoon.
> Please let me know if you do not see the corrections.
> Thank You,
>
>
> marv@mitec.net wrote:
>> Regarding:
>> Data Error Report
>>
>>
>> Message:
>> On March 7, 2000 the following web sites showed volume for the day for DLOV – Daleco Resources CP of 2,300 shares: FinancialWeb.com and Quicken.com.
>>
>> On March 8, 2000 the following web sites showed volume for the day for DLOV – Daleco Resources CP of 26,200 shares: FinancialWeb.com, Quicken.com and MSN Money Central.com.
>>
>> On March 13, 2000 Barchart.com showed DLOV – Daleco Resources Corp volume for the day as 2,000 shares.
>>
>> Daleco Resources Corp was deleted from the OTCBB to the Pink Sheets on February 22, 2000 to be effective on February 28, 2000. Yahoo Finance & MoneyCentral web sites are presently the only web sites that I can find that show Historical Volume figures for the time period of March 1, 2000 to August 1, 2000 when Daleco Resources Corp was listed only on the Pink Sheets.
>>
>> Yahoo Finance Historical Volume figures for the above mentioned dates is shown as follows:
>> March 7, 2000——————–230,000 shares
>>
>> March 8, 2000——————2,620,000 shares
>>
>> March 13, 2000——————200,000 shares
>>
>> Apparently from the period starting March 1, 2000 to August 1, 2000, all trades that took place in Daleco’s stock had two zeros added to the daily trading volume!
>>
>>
>> From:
>> marv@mitec.net
===============================================================================================

DEAR REGULATORY AUTHORITIES FOR PUBLIC EQUITIES ON UNITED STATES MARKETS:

IT IS WHAT IT IS, AND NO MEDIA OR SPECIAL INTERESTS OR POLITICAL CONNECTIONS CAN CHANGE THE DOCUMENTED FACT THAT DALECO RESOURCES CORP IS AND HAS BEEN FOR AT LEAST 28 YEARS A PUBLIC CORPORATION THAT WAS BASED ON AND PROCEEDED TO BENEFIT ONLY THE FOUNDERS DOV AMIR & LOUIS ERLICH AND A FEW OF THEIR FRIENDS! IS DALECO RESOURCES CORP THE EQUIVALENT (OR CLOSE TO) OF THE MOVIE “THE FIRM” PART II??

Marv Eatinger

LAW BLOG
WSJ.com on law and business and the business of law.
Search Results for ‘MARY SCHAPIRO’
January 15, 2009, 5:35 pm
The New Face of Mary Schapiro?

DEAR MS SCHAPIRO: Daleco Resources Corp is a classic example of unregulated capitalism. Where was the NASD & SEC, and were they looking the other way?

THE ANATOMY OF A PUBLIC CORPORATION FRAUD – DALECO RESOURCES CORPORATION

1. THE ILLEGAL POOLING OF INTERESTS AMALGAMATION BETWEEN UNITED WESTLAND & REEF RESOURCES IN CANADA IN NOVEMBER OF 1981.

2. THE MERGER IN NEVADA ON OCT. 1, 1983 OF WESTLANDS RESOURCES CORPORATION (NEVADA) & REEF RESOURCES CORPORATION (NEVADA) THAT IS RECORDED BY THE SECRETARY OF STATE OF NEVADA AS A MERGER THAT WAS OFFICIAL AS OF JAN. 24, 1984.

3. THE FRAUDULENT ACCOUNTING CONSPIRACY THAT TOOK PLACE BETWEEN UNITED WESTLAND (NOW DALECO) & COOPERS & LYBRAND ACCOUNTING FIRM AS DALECO’S AUDITORS. ALL MADE POSSIBLE BY THE FRAUDULENT ACTS COMMITTED IN ITEMS 1 & 2 ABOVE.

4. ON NOV. 11, 1992 DALECO RESOURCES CORPORATION FILED A PRELIMINARY PROSPECTUS WITH THE SEC FOR THE ISSUE OF 3,000,000 COMMON SHARES. THE UNDERWRITERS FOR THIS ISSUE WERE TO BE MEYERS, POLLOCK, ROBBINS INC. THE SEC APPARENTLY NEVER APPROVED THIS ISSUE.

New York County District Attorney’s Office
Manhattan District Attorney Robert M. Morgenthau announced that MICHAEL PLOSHNICK, the president of MEYERS POLLOCK ROBBINS INC., has pleaded guilty today to …
manhattanda.org/whatsnew/press/2000-10-04.shtml – 11k – Cached – Similar pages

5. NOVEMBER OF 1995 DALECO RESOURCES CORPORATION BARRON’S – MARKET WEEK ADVERTISEMENT (NOV. 27, 1995 – MW15) THAT ON NOV. 17, 1995 DALECO ACQUIRED SUSTAINABLE FOREST INDUSTRIES, INC. – TELEPHONE NO. 516-357-9759 HEMPSTEAD, LONG ISLAND. I CALLED THIS NUMBER AND GOT A RECEPTIONIST WHO TOLD ME THAT THIS WAS THE OFFICE OF A CLEANING COMPANY THAT DID CLEANING FOR 5 DIFFERENT COMPANIES. 6 MONTHS LATER I CALLED THE SAME TELEPHONE NUMBER AND THE RECEPTIONIST TOLD ME THAT THIS WAS THE OFFICE FOR A FIRM THAT SOLD EMERGING COMPANY STOCKS (MY OPINION – A BOILER ROOM OPERATION).

8. ON OCTOBER 1, 1996 DALECO RESOURCES CORPORATION BECOMES A DOMESTIC UNITED STATES COMPANY INCORPORATED IN DELAWARE AND EFFECTIVE OCT. 1, 1996 MERGES WITH DEVEN RESOURCES, INC.

9. DECEMBER 1996 THROUGH JANUARY 1997 REGULATION “S” SHARES THAT DALECO SUPPOSEDLY SOLD TO “FOREIGN INVESTORS” ARE BEING SOLD BACK INTO THE NASDAQ MARKET BY THOSE SUPPOSED “FOREIGN INVESTORS”.

10. SOMETIME IN 1996 OR 1997 DALECO HAS AT LEAST 5,000,000 COMMON SHARES BEING SOLD “NAKED SHORT”.

11. EFFECTIVE FEBRUARY 17, 1998 DALECO RECORDS WITH THE SECRETARY OF STATE OF DELAWARE A 1 FOR 10 REVERSE COMMON STOCK SPLIT.

12. EFFECTIVE FEBRUARY 24, 1998 DALECO RECORDS IN ALL FUTURE SEC FILINGS A 1 FOR 10 REVERSE COMMON STOCK SPLIT.

13. ON FEBRUARY 24, 1998 DALECO’S NEW CUSIP NO. BECOMES 23437P208. HOWEVER, DALECO IN ALL FUTURE SEC FILINGS NEVER USES THIS NEW CUSIP NO. BUT USES THE OBSOLETE CUSIP NO. OF 23437P109. THIS MAKES IT POSSIBLE FOR DALECO TO CIRCUMVENT SEC SCRUTINY AS TO THE FEB. 24, 1998 1 FOR 10 REVERSE SPLIT.

14. FEBRUARY 28, 2000 THROUGH AUGUST 1, 2000 WHILE DALECO IS DELISTED TO THE “PINK SHEETS” AND USING TWO ACTIVE SYMBOLS OF “DLOV & DLVO”, DALECO STAGES ACTUAL TRADES FOR ITS COMMON STOCK AND ADDS TWO ZEROS TO THESE DAILY TRADES IN ORDER TO COVER 1/100 OF THE VOLUME OF COMMON SHARES THAT WERE SOLD “NAKED SHORT” IN 1996 AND/OR 1997.

15. ALL OF THE ABOVE VIOLATIONS HAVE MADE IT IMPOSSIBLE FOR DALECO RESOURCES CORPORATION TO FILE REPORTS WITH THE SEC THAT ARE FREE OF MISLEADING & DECEPTIVE STATEMENTS!

Rule 10b-5: Employment of Manipulative and Deceptive Practices”:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security.

Where was the NASD/FINRA & the SEC? I have been involved in two public companies Daleco Resources Corp & Regency Affiliates, Inc. I have lost all respect for the ability of regulatory authorities for public equities in the United States to carry out their mandate. I hope that one of your sincere concerns, is to eliminate the influence of special interests and political connections when the stockholders of public corporations are left holding the bag as a result of CORPORATE FRAUD!

> FINRA: OFFICE OF THE OMBUDSMAN PLEASE FORWARD TO MARY SCHAPIRO.
>
> Mary Schapiro – FINRA
>
> When you move to the SEC as Chairman of the SEC, hopefully the following message posted on http://www.ragingbull.com will give you some insight as to the lack of oversight of the existing public equity regulatory authorities in the United States and their ability to investigate and prosecute public white collar corporate crime in a manner that transcends “JUSTICE DELAYED IS JUSTICE DENIED”.
>
> Sincerely,
>
> Marv Eatinger
>
>
> By: virgule
> 18 Jan 2009, 05:53 PM EST
> Msg. 847 of 847
> Jump to msg. #
>
> DOV AMIR – THIS MESSAGE IS FOR YOU
>
>
>
> (Voluntary Disclosure: Position- Long)

===============================================================================
Email Form

To: Office of the Ombudsman
Your Name:
Your Email: Send a copy of this message to me.
Subject:
Message: FINRA: OFFICE OF THE OMBUDSMAN PLEASE FORWARD TO MARY SCHAPIRO.

Mary Schapiro – FINRA

When you move to the SEC as Chairman of the SEC, hopefully the following message posted on http://www.ragingbull.com will give you some insight as to the lack of oversight of the existing public equity regulatory authorities in the United States and their ability to investigate and prosecute public white collar corporate crime in a manner that transcends “JUSTICE DELAYED IS JUSTICE DENIED”.

Sincerely,

Marv Eatinger

By: virgule
18 Jan 2009, 05:53 PM EST
Msg. 847 of 847
Jump to msg. #

DOV AMIR – THIS MESSAGE IS FOR YOU

< THE ANATOMY OF A PUBLIC CORPORATION FRAUD – DALECO RESOURCES CORPORATION
<
< 1. THE ILLEGAL POOLING OF INTERESTS AMALGAMATION BETWEEN UNITED WESTLAND & REEF RESOURCES IN CANADA IN NOVEMBER OF 1981.
<
< 2. THE MERGER IN NEVADA ON OCT. 1, 1983 OF WESTLANDS RESOURCES CORPORATION (NEVADA) & REEF RESOURCES CORPORATION (NEVADA) THAT IS RECORDED BY THE SECRETARY OF STATE OF NEVADA AS A MERGER THAT WAS OFFICIAL AS OF JAN. 25, 1984.
<
< 3. THE FRAUDULENT ACCOUNTING CONSPIRACY THAT TOOK PLACE BETWEEN UNITED WESTLAND (NOW DALECO) & COOPERS & LYBRAND ACCOUNTING FIRM AS DALECO’S AUDITORS. ALL MADE POSSIBLE BY THE FRAUDULENT ACTS COMMITTED IN ITEMS 1 & 2 ABOVE.
<
< 3a. THE MANIPULATION OF DALECO’S SEC FILINGS (20-F, 10-K, 10-Q ETC.) FOR 1984, 1985, 1986, & 1988 BY SHEA & GOULD LAW FIRM AND ITS MANAGING PARTNER MARIO V. MIRABELLI IN ORDER TO CIRCUMVENT SEC SCRUTINY AS TO DALECO’S FRAUDULENT BEGINNINGS.
<
< 4. ON NOV. 11, 1992 DALECO RESOURCES CORPORATION FILED A PRELIMINARY PROSPECTUS WITH THE SEC FOR THE ISSUE OF 3,000,000 COMMON SHARES. THE UNDERWRITERS FOR THIS ISSUE WERE TO BE MEYERS, POLLOCK, ROBBINS INC. THE SEC APPARENTLY NEVER APPROVED THIS ISSUE.
<
<
< New York County District Attorney’s Office
< Manhattan District Attorney Robert M. Morgenthau announced that MICHAEL PLOSHNICK, the president of MEYERS POLLOCK ROBBINS INC., has pleaded guilty today to …
< manhattanda.org/whatsnew/press/2000-10-04.shtml – 11k – Cached – Similar pages
<
<
< 5. NOVEMBER OF 1995 DALECO RESOURCES CORPORATION BARRON’S – MARKET WEEK ADVERTISEMENT (NOV. 27, 1995 – MW15) THAT ON NOV. 17, 1995 DALECO ACQUIRED SUSTAINABLE FOREST INDUSTRIES, INC. – TELEPHONE NO. 516-357-9759 HEMPSTEAD, LONG ISLAND. I CALLED THIS NUMBER AND GOT A RECEPTIONIST WHO TOLD ME THAT THIS WAS THE OFFICE OF A CLEANING COMPANY THAT DID CLEANING FOR 5 DIFFERENT COMPANIES. 6 MONTHS LATER I CALLED THE SAME TELEPHONE NUMBER AND THE RECEPTIONIST TOLD ME THAT THIS WAS THE OFFICE FOR A FIRM THAT SOLD EMERGING COMPANY STOCKS (MY OPINION – A BOILER ROOM OPERATION).
<
< 6. ON MARCH 17, 1996 DALECO RESOURCES CORPORATION ENTERS INTO A CONSULTING AGREEMENT WITH DEVEN RESOURCES, INC. (DAVID LINCOLN & GARY NOVINSKIE)
<
< 7. ON MARCH 19, 1996 DALECO RESOURCES CORPORATION ENTERS INTO A CONSULTING AGREEMENT WITH AVONWOOD CAPITAL CORPORATION (JAMES W. PORTER, JR & THOMAS A. SMITH)
<
< 8. ON OCTOBER 1, 1996 DALECO RESOURCES CORPORATION BECOMES A DOMESTIC UNITED STATES COMPANY INCORPORATED IN DELAWARE AND EFFECTIVE OCT. 1, 1996 MERGES WITH DEVEN RESOURCES, INC.
<
< 9. DECEMBER 1996 THROUGH JANUARY 1997 REGULATION “S” SHARES THAT DALECO SUPPOSEDLY SOLD TO “FOREIGN INVESTORS” ARE BEING SOLD BACK INTO THE NASDAQ MARKET BY THOSE SUPPOSED “FOREIGN INVESTORS”.
<
< 10. SOMETIME IN 1996 OR 1997 DALECO HAS AT LEAST 5,000,000 COMMON SHARES BEING SOLD “NAKED SHORT”.
<
< 11. EFFECTIVE FEBRUARY 17, 1998 DALECO RECORDS WITH THE SECRETARY OF STATE OF DELAWARE A 1 FOR 10 REVERSE COMMON STOCK SPLIT.
<
< 12. EFFECTIVE FEBRUARY 24, 1998 DALECO RECORDS IN ALL FUTURE SEC FILINGS A 1 FOR 10 REVERSE COMMON STOCK SPLIT.
<
< 13. ON FEBRUARY 24, 1998 DALECO’S NEW CUSIP NO. BECOMES 23437P208. HOWEVER, DALECO IN ALL FUTURE SEC FILINGS NEVER USES THIS NEW CUSIP NO. BUT USES THE OBSOLETE CUSIP NO. OF 23437P109. THIS MAKES IT POSSIBLE FOR DALECO TO CIRCUMVENT SEC SCRUTINY AS TO THE FEB. 24, 1998 1 FOR 10 REVERSE SPLIT.
<
< 14. FEBRUARY 28, 2000 THROUGH AUGUST 1, 2000 WHILE DALECO IS DELISTED TO THE “PINK SHEETS” AND USING TWO ACTIVE SYMBOLS OF “DLOV & DLVO”, DALECO STAGES ACTUAL TRADES FOR ITS COMMON STOCK AND ADDS TWO ZEROS TO THESE DAILY TRADES IN ORDER TO COVER 1/100 OF THE VOLUME OF COMMON SHARES THAT WERE SOLD “NAKED SHORT” IN 1996 AND/OR 1997.
<
< 15. THE ABOVE VIOLATIONS HAVE MADE IT IMPOSSIBLE FOR DALECO RESOURCES CORPORATION TO FILE REPORTS WITH THE SEC THAT ARE FREE OF MISLEADING & DECEPTIVE STATEMENTS!
<
< Rule 10b-5: Employment of Manipulative and Deceptive Practices”:
< It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
< (a) To employ any device, scheme, or artifice to defraud,
< (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
< (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
< in connection with the purchase or sale of any security.

Here is a paragraph from the beginning of DOC file Sean linked to just above:

“…….
BCIT the Smoking Gun.

BCIT is the smoking gun. BCIT has undeniable proof that well over 350 million counterfeit shares of BCIT stock were created by the large banks/brokers. Furthermore, BCIT’s case shows that the SEC, the DTCC and Congress were all well aware of this and refused to do anything about it. The Naked Shorting criminals pocked well over 50 million dollars from the counterfeiting of BCIT stock alone.

After we provide our evidence, we hope you the American Public will begins to understand how broken our Economy really is and will help us spread the word about what is really happening within our economy.

All it takes is for one person to stand up to the injustices and say enough is enough followed by another, then another and soon a movement is born. We hope this report will start such a movement and that you will stand up with us.
……..”

 In an October 2008 meeting between BCIT and the DTCC, the DTCC finally gave BCIT an ultimatum after years of giving BCIT management false promises about lifting the Global Trading Freeze.
 BCIT management was told if they ever wanted the Global Trading Freeze lifted they first had to issue enough new shares to cover all the existing Naked Shorted shares the brokers created out of thin air.
 Issuing new company shares would essentially allow the brokers to cover up all of BCIT shares they counterfeited.
 This would also allow the brokers to keep all of the money they stolen from the BCIT shareholders without penalty. Furthermore, all the extra shares would severely dilute the share structure and cause even further damage to the stock price.
 This is nothing more then BLACKMAIL by the DTCC. There are no other words to describe it.
 How the SEC and Congress continue to allow the DTCC to blackmail BCIT is beyond comprehension.
 Anthony Carlisle, Isaac Montal, Larry Thompson are three officials at the DTCC who are directly involved with the BCIT case. How they can allow the brokers to sell 350 million counterfeit air shares to innocent BCIT shareholders and then later block BCIT from trading which further injures the BCIT shareholders is beyond comprehension.
 I just hope that their families and friends get sent this email, so one day they will understand what these men have done to the BCIT shareholders.”

If there are only 4.7 million shares outstanding versus 350 million counterfeit, then it means that there are 75.5 times as many phantom shares as real ones.

If they are able to trade, buy a company that generates a profit for shares, then pay out dividends. It’s a cash machine.

For every million dollars the company pays out, the DTCC and friends have to come up with $75.5 million. This small stock could quickly bankrupt them.

It isn’t true that when a company goes bankrupt, that it let’s the naked shorts off the hook. They try and pretend that’s true, deleting the entitlements from your account, but as long as the company is not delisted from the registrar of companies, you are still entitled to your share.

I think the DTCC is really vulnerable if they were ever forced to deliver shares of companies that are bankrupt, but not delisted.

Before 1970 our clearance and settlement system was pretty straight forward. A courier representing the seller of shares would drop off stock certificates in exchange for the purchaser of stock’s check. The delivery of stock certificates was made “in good form” if the stock certificate was endorsed properly and not the product of any counterfeiting crime. The stock certificate typically had the corporate seal of the company involved embossed on it as well as the signature of the company’s treasurer or other officer as well as a distinct border pattern. All of these represented anti-counterfeiting measures.

Around 1970 the trading volumes on Wall Street skyrocketed and the clearance and settlement of trades involving paper certificates became too cumbersome. Congress’s solution was to establish a national clearance and settlement system that would incorporate policies involving the “immobilization” of shares in one central depository (the “DTC”) followed by the “dematerialization” of paper-certificated “shares” of a corporation INTO AN EQUAL AMOUNT OF electronic book entry shares. The intent was to streamline the clearance and settlement system.

So far so good, right? Well maybe yes and maybe no because lost in the shuffle were the anti-counterfeiting measures associated with paper-certificated shares. Please make a mental note of that as electrons travelling through cyberspace don’t have any anti-counterfeiting characteristics. The system was still based on “delivery in good form versus payment” (DVP) but the “delivery in good form” aspect was predicated on the fact that each electronic book entry created had a corresponding paper-certificated “share” being held in a DTC vault.

A gigantic roll of the dice was made by Congress with the presumption that the administrator of this new national system for the clearance and settlement of trades would ACT IN GOOD FAITH with this tremendous responsibility to make sure that these new electronic book entry “shares” would NEVER exceed the amount held in the DTC vault system. After all, the anti-counterfeiting properties associated with paper-certificated shares were inaccessible while being buried in a DTC vault somewhere.

So far so good, right? Well, once again the jury is out on that issue because by definition “DELIVERY IN GOOD FORM” COULD ONLY OCCUR IF THE NUMBER OF ELECTRONIC BOOK ENTRY “SHARES” NEVER EXCEEDED THE NUMBER OF PAPER-CERTIFICATED “SHARES BEING HELD IN THE DTC VAULT SYSTEM.

In the old days there wasn’t such a thing as a “failure to deliver” (FTD) as that courier was not going to pick up a check until he dropped off properly endorsed paper-certificated shares. There was no extension of “credit” in the system because one could never know if the counterparty to the trade would perform as promised or not. Any extension of “credit” would violate the “delivery in good form” foundation of the entire clearance and settlement system.

As trading volumes continued to soar the concept of having “market makers” and “specialists” available to inject liquidity when there were order imbalances between buy and sell orders became popular. They would serve to “buffer” violent share price swings. Since market makers (MMs) didn’t typically “inventory” large share positions the movement came about to allow them to sell nonexistent shares (“naked short sale”) into order imbalances involving buy orders dwarfing sell orders BUT only if they acted as a truly “bona fide” MM which would promptly close that “open naked short position” on the next downtick in the share price. This was due to the incredibly damaging nature of the “securities entitlements” resulting from the failures to deliver that result from naked short selling shares. If these MMs did not do this then the entire foundational concept of “delivery in good form” would be out the window.

Certain “opportunistic” MMs noticed that no regulators or self-regulatory organizations (SROs) were bothering to monitor the amount or age of the FTDs that were invisibly accruing in the share structures of corporations. They also realized that they could amass gigantic naked short positions which of course resulted in gigantic amounts of incredibly damaging readily sellable “securities entitlements” and then predictably destroy corporations via diluting them share structures to death.

This would make the naked short positions they had silently amassed worth a fortune. What really came in handy was that they could rhetorically justify this malfeasance by claiming to be “injecting” much-needed liquidity into the markets of especially the thinly-traded securities of development stage corporations that were typically too young to offer any resistance to these attacks. An appropriate analogy might be that of intentionally stepping on the oxygen line in the neonatal intensive care unit.

U.S. investors didn’t realize it but they were betting their life savings that the management of the DTC would rigorously monitor for any abuses by these MMs and “specialists” ENTRUSTED with this promise to quickly cover any naked short position established lest the “securities entitlements” resulting from their FTDs predictably manipulate the share price of corporations downwards. The assumption made by all investors was that if these MMs didn’t voluntarily cover these naked short positions then the now NSCC subdivision of the DTCC would “promptly” buy-in these “open naked short positions” because they had the congressional mandate to “promptly settle” all securities transactions. This is synonymous with making sure that “delivery in good form” was “promptly” accomplished. After all, UCC Article 8 made the “securities entitlements” resulting from FTDs readily sellable as if they were legitimate “shares” which they are certainly not. The authors of UCC-8 were counting on the NSCC to follow their congressional mandate. They were wrong!

Let’s take a look at one of dozens of NSCC policies that throw the concept of “delivery in good form” out the window. Recall that “delivery in good form” was the very foundation for the entire “immobilization” and “dematerialization” mandates of Congress.

The NSCC administers what they refer to as their “automated stock borrow program” or SBP. Their participants are allowed to place certain qualifying securities they hold for their clients into this “lending pool” of securities. Their “participants” are highly financially incentivised to do so as they can convert an electronic book entry “share” into interest earning cash.

When the NSCC witnesses an FTD they place their hand into the lending pool and retrieve a parcel of shares and thus “cure” the associated FTD. The brokerage firm of the purchaser of the shares that never got delivered originally then receives an electronic book entry for these shares in their “NSCC shares account”. These “shares” are then correctly debited from the “participant’s shares account” of the donor of the shares.

Curiously the firm that just got “delivery” of the borrowed shares is then allowed by NSCC policies to replace that very same parcel of “electronic book entry shares” right back into that same SBP lending pool as if they never left in the first place. There this parcel of shares can be used to “cure” yet another FTD. Soon this particular parcel of shares which is not readily identifiable due to the fact that the SBP uses “anonymous pooling” of all shares donated may have a dozen different “co-beneficial owners” receiving monthly brokerage statements “implying” that this particular parcel of shares is being “held long” on their behalf.

Now let’s go back to the premise of the movement to “immobilization” and “dematerialization” in which the number of electronic book entries created was NEVER to exceed the amount of shares held in the DTC vaults. In the above example there is one paper certificate in a DTC vault that is backing 12 different electronic book entries of the same size. That one certificate has a corporate medallion on it and the signature of the corporation’s treasurer. It also has a border pattern that is hard to counterfeit.

The presumption of “immobilization” and “dematerialization” was that the party administering this new “national clearance and settlement system” would rigorously prevent this from happening. The SEC recently notified the world that the number of FTDs has grown so far out of control that they cannot buy them all in without causing “market volatility” and that therefore this evidence of massive thefts from investors should be “grandfathered in” in regards to Reg SHO. Whatever happened to “good form delivery” being needed to allow a trade to legally “settle”? “Not so good form delivery” is the result of massive amounts of counterfeiting which only benefits the financial behemoths that make up the DTCC and their unregulated hedge fund “guests” with the critical mass to establish and collateralize massive naked short positions.

Our current DTCC-administered clearance and settlement system congressionally mandated to be based on “good form delivery versus payment” or “DVP” has illegally adopted a foundation of mere “collateralization versus payment” or “CVP” so that its abusive “participants” can easily establish massive naked short positions by simply refusing to deliver that which they sell and predictably kill U.S. corporations so that the funds of their shareholders can be rerouted into their own wallets. The “pseudo-delivery” of an easily counterfeited electronic book entry with no paper certificate held anywhere to justify its existence does not constitute “good form delivery”. It constitutes fraud and the “illusion” that trades on Wall Street are legally “settling”.

FOLLOWING THE MONEY TRAIL IN ABUSIVE NAKED SHORT SELLING (ANSS) FRAUDS

We’ve established the fact that any clearance and settlement system based on mere “collateralization versus payment” (CVP) provides limitless opportunities to access the self-fulfilling prophecies associated with abusive naked short selling frauds. Let’s assume an investor ordered $1 million worth of “Acme” Corporation over the phone. His broker/dealer (b/d) takes the order and sees that the investor has the money in his account. In a clearance and settlement system based on CVP and the ability to easily reroute an investor’s funds into his own pocket what are his options?

He could naked short sell into the order at his own trading desk and establish a nice fat naked short position. He could also pick up the phone to a co-conspiring unregulated hedge fund and bring the buy order to their attention and see if they wanted to NSS into it. The quid pro quo for this “heads up” might be the direction of “order flow” to this b/d by the hedge fund. Another option might be to simply process the buy order and direct it to the appropriate “market center”.

Let’s assume that choice #2 is made and the co-conspiring hedge fund naked short sells into the buy order. Sure enough the hedge fund fails to deliver the shares on T+3 because it never had a long position in Acme. What happens to the money? The hedge fund doing the naked short selling does not gain access to the money right away but he does have “first dibs” on it should the share price drop. In a CVP-based system this is true even if he absolutely refuses to deliver that which he sold. The party with the FTD is typically asked to post about 102% collateral with the unknowing buyer’s money serving as about 99% of it.

He basically has established a free “option”. Despite his absolute refusal to deliver that which he sold he has “earned” the option to open up his wallet and let the investor’s funds flow into it as the share price predictably tanks from this ANSS behavior. In securities law parlance this is referred to as a “riskless transaction”. In the mean time the $1 million is held in “limbo” serving to “collateralize” this debt. Unbeknownst to the investor the b/d of the investor, since “delivery” has not been made yet, gets to keep the interest earnings off of the money. That’s pretty exciting and that provided the incentive for the purchasing b/d to aim the buy order to a co-conspirator likely to NSS into the order. This is 180-degrees antipodal to what his client the buyer of the shares that just paid his b/d a commission as his “agent” wants to see happen but he doesn’t understand what CVP is all about.

If I were a clever Wall Street entrepreneur aware of this “opportunity” involving interest earnings associated with clearance and settlement systems illegally based upon CVP I’d open up a b/d and only charge $7 per commission. I don’t care about the commission it’s basically a “loss leader”. I want a bunch of unknowing investors running their buy orders through my firm. I want the interest earnings of the money held in “limbo” and only charging $7 per trade should attract plenty of that. I know that the FTD results in the procreation of incredibly damaging “securities entitlements” that decrease the prognosis for my client’s investment but what do I care. He only paid me $7. What do you expect for $7?

What we just saw was the origination of something referred to as a “conflict of interest”. Any clearance and settlement system based upon CVP by definition will have many dozens of these because the markets in a CVP-based clearance and settlement system are “rigged” to go down and most investors place bets that their investment is going to go up.

In a clearance and settlement based upon CVP when a buy order appears the antennae of abusive market intermediaries go up and the race is on to NSS into the buy order and the associated interest earnings. Who’s going to get the superior visibility of buy orders? This belongs to the larger MMs and those firms charging $7 per trade.

If I were an unregulated hedge fund that based his “proprietary trading methodologies” on killing corporations via ANSS I would steer order flow to one of these $7 per trade b/ds in exchange for getting these “heads up”. If I were a particularly dirty hedge fund active in money laundering activities I would steer my business to a b/d not only charging $7 per trade and willing to provide these “heads ups” but I would steer my order flow to one that refused to implement the anti-money laundering laws associated with the Banking Secrecy Act. After having thought I’d pretty much seen it all in the securities fraud realm, three weeks ago one of the largest discount brokers on the planet got fined a measly $1 million for refusing to implement these country protecting anti-money laundering policies for a 5 straight year period from 2003 to 2007. How do you “forget” for 5 straight years?

In regards to the above post I failed to make some critical points. The only “real” money in this whole scenario is that of the unknowing investor. The crooks selling the nonexistent shares are all operating on the “debt” side. They “delivered” an IOU; big deal. What kind of an IOU is it? Due to how “central counterparties” (CCPs) operate in a clearance and settlement system based upon “novation” at the end of the day the delivery obligation is owed by the party failing delivery directly to the NSCC subdivision of the DTCC.

The NSCC after “discharging” the delivery obligation of its abusive participant then has the audacity to plead to be “powerless” to “execute” on the delivery obligation that it recently “assumed” as the CCP. What is an IOU worth when the holder of it pleads to be “powerless” to do what is necessary when the debtor absolutely refuses to deliver that which it sold i.e. to “buy-in” the debt? The IOU essentially becomes worthless if the party holding it refuses to act. The buyer of shares was “delivered” an IOU that by design can’t be called in.

What risk did the seller of the nonexistent shares incur? None except for the extra 2% he had to chip in towards the 102% collateralization requirement and he’ll get that back by tomorrow. In order to effect a buy-in you need BOTH the power and the incentive to do so. On paper there is still an FTD on the books which the DTCC constantly reminds us about. There are two parties that could make a case that they have the POWER to effect the buy-in needing to be done when the seller of shares absolutely refuses to do so.

The first party is the NSCC as the CCP/“surrogate creditor” that unconscionably pleads to be “powerless” to do so. This “surrogate creditor” is supposed to be acting on behalf of the purchaser of the missing shares. The second party with the POWER is the investor’s b/d with a “failure to receive” on the books but he has no INCENTIVE to do so because he gets to earn the interest that the collateralization proceeds makes UNTIL delivery is accomplished.

There is only one curative action when the seller of shares absolutely refuses to deliver that which he sold. That’s known as a forced buy-in. Unfortunately for U.S. investors both the POWER and the INCENTIVE need to be present to access the only cure available. As I hope you’re starting to appreciate this is one meticulously-designed form of a “fraud on the market” that has necessitated a whole bunch of intentional covering up over a lot of years!

I Standup thanks for reading the doc and the comments. I find this utterly amazing aand someone somewhere will have to pay for this miscarrage(sp) of justice. This is too extreme 4.7mill to 350 mill!!! Dr DeCosta your comments are most appreciated especially on this one!!Thanks in advance.

” There were only two people who were not allowed to be guests on NBC’s Tonight Show during Johny Carson’s reign: Ralph Nader and Richard Ney.

When Richard Ney’s first book, The Wall Street Jungle, came out it was on the New York Times best seller list for 11 months. Yet the New York Times would not review it. The Wall Street Journal refused to take an ad from a New York bookstore that featured The Wall Street Jungle.”

We’ve seen how incredibly easy it is for securities fraudsters to manipulate the share price of a targeted corporation downwards in a clearance and settlement system that has illegally incorporated a foundation of “collateralization versus payment” (CVP) instead of the congressionally mandated “good form delivery versus payment” (DVP).

In “garden variety” Type 1 ANSS frauds the goal is to establish massive naked short positions by simply refusing to deliver that which you sell to unknowing investors. As the share price predictably “tanks” then the investor’s funds flow into the wallets of those with the preestablished naked short positions despite the fact that they still refuse to deliver that which they sell.

In a clearance and settlement system based on CVP they don’t have to deliver anything. All they’re asked to do is to “collateralize” ( the “C” in CVP) the monetary value of this “open naked short position” and thus as the “securities entitlements” procreated from all of the failures to deliver (FTDs) accumulate in the share structures of targeted corporations the share price has to drop as these mere “securities entitlements” are readily sellable as if they were legitimate shares which they’re not.

The result is the self-fulfilling prophecy involving the refusal to delivery that which you sell resulting in the unknowing investor’s funds flowing into the wallets of those that continuously refuse to deliver that which they sell. Most of the time the goal of these frauds is to steal the money of the investor that unknowingly bought the nonexistent “shares” but there are other applications available to those willing to perpetrate these frauds. ANSS frauds can also be used as a “weapon”.

Imagine the possibilities available to a well-established corporation to intentionally kill any defenseless development stage corporations seen as a future threat. What could be easier? If the development stage corporation is yet to be cash flow positive then it has to constantly sell shares as sometimes deep discounts to market prices (due to the implied risk) just to pay its monthly burn rate. Imagine the possibilities of forcing these corporations to constantly sell shares at deep discounts to share price levels that can easily be put into a “death spiral” downwards. Imagine how successful this might be if the development stage corporation just happened to have a very large monthly burn rate. By the time this corporation ever does become cash flow positive it’s going to have so many shares “outstanding” that its earnings per share (EPS) will never amount to much because of the excessive amount of “shares outstanding”.

These companies receive a double whammy because not only do all of these excessive legitimate “shares” outstanding resulting from the manipulation depress share prices so too do the “securities entitlements” resulting from all of the failures to deliver invisibly accumulating in the share price of the corporation targeted for destruction. Again, what could be easier then simply refusing to deliver that which you sell in order to achieve your goal? Is it time for the anti-trust regulators to poke their noses into these frauds?

ANSS frauds are also available to terrorist organizations that want to kill any U.S. corporations that they see as a threat to their imposing of their beliefs on our citizens. Is it time for Homeland Security to poke their noses into these frauds? Is the concept of “treason” applicable here? How many archaic “securities entitlements” are currently poisoning the share structures of our defense contractors or our banks that form the foundation for our financial system? Osama Bin Laden once stated that he knows the weaknesses of our financial system better than he knows the back of his own hand. What do you at the DTCC and SEC think he was referring to? Imagine the poetic justice of terrorists piggybacking onto the greed of Wall Street to bring down our country. This is not rocket science! Just “settle” all of the trades that have slipped through the cracks in the system so that the purchasers of all of these “shares” can finally get delivery of that which they purchased.

Would it be “inconvenient” for the DTCC and the SEC to FORCE via mandated buy-ins these crooks to deploy the investors’ funds they stole back into the market to purchase and then finally deliver that which they sold even though it is now well past T+3? Is there something wrong with the concept of “better late than never”?

What would be the “inconvenience” experienced by the DTCC management or an SEC Commissioner or staff member that chooses to effect the only solution possible when the seller of shares absolutely refuses to deliver that which it sold i.e. forcibly buy-in the debt? Might any SEC Commissioner or staff member that stood up lose his shot at a much higher paying job on Wall Street after his stint with the SEC? Would it be more “convenient” for an SEC commissioner or staff member to just not “rock the boat” and let his successors do the right thing? Might a member of the DTCC or NSCC management that stood up and did the right thing risk incurring the wrath of the “participants” that that own the DTCC and that employ him?

How about the members of the congressional committees that oversee the SEC? Why do they refuse to pull the trigger on the only solution available? Do they think that people on Wall Street and at hedge funds “forget” to deliver that which they sell? You’ve noted the existence of a crime. The buy-in process will with 100% accuracy identify the perpetrators of the fraud and find and return the stolen money to the victims. What am I missing here? I just don’t get it!

Will there be a more “convenient” time later when the number of bogus “securities entitlements” hiding in the share structures of victimized corporations is ten times as large as it is now? Do the “systemic risk” or homeland security aspects of this crime wave concern you SROs and regulators at all? Help me out here, I just don’t get it! Is this really all about “convenience”?

Question.. It’s been reported that Madoff’s firm apparently HAD NOT TRADING FLOOR!!

Despite this, I know I saw his mmkr symbol active for a couple of days on level II for ABK (Ambac) back in Oct/November time frame. I looked it up because I was unfamiliar with the symbol.

So if he wasn’t trading, how could he have been a mmkr?

Secondly, if his niece, who’s married to the SEC official, was his firm’s compliance officer, she should be aware of whether the firm was trading or not. And if it wasn’t trading, why hasn’t she been arrested and jailed?

On a side note, I read the document about BTIC submitted by Sean, and then looked up the company… and it is an absolutely fascinating and rediculously blatant example of criminal activity orchestrated to profiteer at the expense of bankrupting an individual company.

I sometimes feel as though those of us here are like soldiers huddled together in a foxhole, facing an overwhelming and entrenched foe with unlimited resources and manpower.

While every single one of us would love to jump up and charge the line with guns blazing; the reality is it would most likely cost you your life (not just in this analogy, but in the real world as well!).

I am mad as hell over these issues/events that I’ve taken the time to become educated about; but it seems that the more I learn about it, the more I find that is an incredibly widespread and systemic problem. The corruption is so deep and pervasive that as an individual I think there is REAL RISK to being a “squeaky wheel” and formally registering complaints with my name attached.

Maybe when dealing with cretins and miscreants of the magnitude we are discussing here it is just simply ineffective and probably even dangerous to try effecting change through the traditional channels; channels which are corrupted and controlled by the very same self-perpetuating plutocracy we endeavor to replace.

Hawkmoon,
Some trades were going through Madoff’s brokerage, however, none of the trades going through were not his victims money via his fund. So in essence, he never made a trade of his funds through his own brokerage or any other brokerage for that matter is my underatanding. I hope this clears it up.

Hawkmoon,
Let me clear up my post from the typo’s. Madoff never traded any funds of his victims through his own brokerage or any other brokerage for that matter. There were trades through his brokerage, just not his own investment funds that reaped him billions.

These corrupt pieces of chit keep spending our money and thumbing their noses up at us…here is our tax dollars at work and our corrupt officials just sit there doing nothing because they can, and we won’t.

The original concept of the rule was that his computers couldn’t fill a buy order in 1/100th of a second without the ability to naked short and buy back in a second or two. Funny how quickly seconds can turn into years.

STUDYING THE COMMONALITIES BETWEEN THE VICTIMS OF MADOFF AND THOSE OF ABUSIVE NAKED SHORT SELLING (ANSS) FRAUDS

I am not doing any of the forensic work on the Madoff case so I am speaking as an outsider looking in. At the end of the day I believe this case will reveal a lot of the puzzle pieces that unconflicted SROs and unconflicted staff members and commissioners of the SEC can utilize to further their efforts towards providing “investor protection and market integrity” IF THEY ARE SO INCLINED.

The question I raise is what is held in common between the victims of the Madoff (alleged) fraud and the victims of naked short selling abuses. The answer I come up with is that both sets of victims got duped by month end brokerage statements that were then and are now very misleading. One could easily make the case that they have been made INTENTIONALLY misleading in both cases.

Both Bernie and Peter Madoff have attained a working knowledge of how our DTCC-administered clearance and settlement system works beyond compare. During the “comment period” for the proposed Reg SHO they filed a brilliant paper making their case for why market maker (MMs) should be gifted with special exemptions from the tenets of the proposed Reg SHO. They won their case and the exemption package became known as the “Madoff exception”.

In this paper they cited the now famous “Manning interpretation” as well as many of the aspects of the SEC’s and NASD’s “OHRs” or “Order Handling Rules”. They illustrated how when a buy order enters their brokerage side of the business they are willing to naked short sell into it within 1/100th of a second. They bragged of how they could “guarantee” that a client of theirs would get a “fill” on their order under various circumstances.

On the abusive naked short selling side of matters there is a small corporation with the symbol “BCTI” that has what appears at first glance to be credible evidence that at least 350 million naked short sold shares exist in their share structure with only 4.7 million shares legally “outstanding”. Their dealings with the DTCC are now famous to most pro-market reform advocates.

The investors in the $50 billion apparent “Ponzi” scheme run by Madoff led to believe that they were earning a healthy return of about 12% per annum and the purchasers of the naked short sold 350 million “shares/securities entitlements” led to believe that their brokerage firms were “holding long” these “securities were obviously hoodwinked by the monthly brokerage statements they were receiving. In the Madoff case it appears to have been grossly blatant but in the naked short selling case it was very cleverly concocted.

On a monthly brokerage statement the purchases made by an unknowing investor are referred to as “securities held long”. The first question that arises is are the mere “securities entitlements” resulting from the “failures to deliver” (FTDs) of those buying naked short sold shares actually “securities” because in reality in the “BCTI” case they could be more properly referred to as “evidences of fraud”. Unfortunately for investors much less financially sophisticated than the Madoffs of the world one definition of a “security” is an “evidence of indebtedness” which might indeed fit the bill for these “IOUs” we refer to as “securities entitlements”. Let’s put this into the “technically true but possibly misrepresentative” category.

The next question is are these incredibly damaging “securities entitlements” being “held long” by somebody and if so where are they being “held long”. One way to rephrase this question is can it be possible to “hold long” a “security” that doesn’t have a paper-certificated security in existence to justify its existence. Apparently in DTCC lingo “holding long” can be accomplished by issuing electronic book entry representations of failed delivery obligations with no paper-certificated representation whatsoever.

Thus “holding” might be representative of electrons flying through cyberspace as opposed to anything to do with being “held” in a vault somewhere as might be implied. Perhaps a less misrepresentative phraseology might be considered but then investors might start asking questions like what exactly did I get for my money. If they learned it was just a readily sellable and nonvoting “securities entitlement” that actually did damage to the prognosis for the investment made then the next question would obviously be then why did I pay the full retail price of a legitimate “share” with voting and other rights. A “securities entitlement” initially is basically an “accounting measure” denoting a failed delivery obligation. The original “contract” stated that I’ll deliver that which I’m selling by T+3 or “settlement date”.

Due to the existence of valid reasons for slight delays in making delivery an allowance had to be made for slightly delayed deliveries. After a certain period of time, however, these readily sellable “securities entitlements” become evidentiary of a fraud. This timeframe would correlate with when it becomes perfectly obvious that the seller had no intention whatsoever to deliver that which he sold under any supposed timeframe. Perhaps after 4 or 5 days past the previously agreed upon “settlement date” or “T+3” the entry on the brokerage statement should be converted to “incredibly damaging evidences of fraud flying through cyberspace that I got hoodwinked into paying too much for”.

Maybe the Madoff as well as the abusive naked short sellers’ “leg up” on their victims is the knowledge that investors never question the veracity of monthly brokerage statements with all of those official looking government logos and guarantees embossed.

One set of books is kept by the corporation BCIT and the other by DTCC.

BCIT’s books show how many shares have been officially and legally issued, and DTCC’s books can show us how many shares of BCIT have been sold.

When it comes to brokerage statements that us common people receive monthly, there seems to be something similar once again to the existence of two sets of books.

Our brokerage statements say we hold stocks xyz long, yet it is very possible that the DTCC has a second set of books that show xyz shares are merely an electronic marker, a “securities entitlements” that has NOT been delivered, and does NOT exist in the corporation’s books of legally issued shares.

Because the DTCC hides its second set of books showing how many shares of stock for each corporation have been SOLD, corporations are being lied to and we the common people are being lied to.

The whole system is corrupted, and the SEC has become the protector of the this corrupt system.

“We use virtually all our resources to pursue fires,” the Securities and Exchange Commission’s enforcement chief, Linda Thomsen, said in draft testimony obtained by Bloomberg for a Senate Banking Committee hearing today. “Additional resources would give us the capacity to pursue smoke before it becomes a fire.”

U.S. lawmakers will publicly grill securities watchdogs today for the first time since Madoff’s Dec. 11 arrest. The proceeding may shed light on the SEC’s fate, as lawmakers debate whether its investigators are overtaxed or ineffectual. Days after the arrest, then-SEC Chairman Christopher Cox faulted the agency’s staff for failing to act on “credible and specific allegations” about Madoff for at least a decade.

“I don’t know whether there will ever be enough resources until the SEC begins to act smarter,” said Peter Wallison, a former Treasury Department general counsel who is now a senior fellow at the Washington-based American Enterprise Institute. The group advocates limited financial regulation.

“There can’t be an excuse that they didn’t have enough people to look into something as precise as the allegations that were made against Madoff,” he said. “We hear this from the SEC every time they fail.”

SEC spokesman John Nester declined to comment on the draft remarks by the regulator’s staff. The testimony was subject to revision. Thomsen, 54, declined to comment on the draft.

Witnesses

Other witnesses include Lori Richards, who heads the SEC’s office inspecting brokerages and investment advisers, and Stephen Luparello, interim chief executive officer of the Financial Industry Regulatory Authority, an industry self-regulator that examined the Madoff brokerage business. Cox stepped down Jan. 20 and the Senate has confirmed his replacement, Mary Schapiro.

In her draft testimony, Thomsen said SEC investigators receive hundreds of thousands of tips every year, and the enforcement division’s 1,000 employees use “triage” to pursue the most promising leads. The staff opened an investigation of Madoff’s investment-advisory business in 2006 and closed the probe two years later without filing a claim.

In his statement last month, Cox said Madoff kept several sets of books and provided misinformation to regulators. The money-management business was audited by Friehling & Horowitz, a three-person firm in New City, New York.

Suggesting an Overhaul

To better detect misconduct, the U.S. should consider overhauling “balkanized” oversight of brokerages and investment advisers, Thomsen said. It should also consider forcing investment advisers to assign custody of customer assets to third parties, and requiring that auditing firms are large enough to oversee money-management clients.

The SEC’s inspections unit never examined Madoff’s money- management business after it registered with the regulator in September 2006. It did inspect his brokerage operations in 1999, 2004 and 2005.

Senate Banking Committee members Charles Schumer, a New York Democrat, and Richard Shelby, a Alabama Republican, want to provide $110 million in federal money to boost the investigative staffs at the SEC, Federal Bureau of Investigation and Justice Department. Legislation proposed by the lawmakers Jan. 22 would allow the SEC to hire 100 new employees in its enforcement division.

Congress

Congress already doubled the SEC budget this decade by approving the Sarbanes-Oxley Act in 2002. The law, a response to accounting scandals at Enron Corp. and WorldCom Inc., allowed the SEC to hire more enforcement attorneys, examiners and accountants. The SEC currently has an annual budget of about $900 million and about 3,500 full-time employees.

On Jan. 5, as the House subcommittee overseeing capital markets heard from one of Madoff’s alleged victims, panel members including Texas Republican Ron Paul said the SEC’s performance shows it should be scaled back or eliminated.

Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, and Shelby, the panel’s top Republican, have asked the SEC for all complaints it received about Madoff, reports on its investigations and internal agency e-mails that mentioned his firm. The lawmakers are also scrutinizing Finra.

Now look at Charles Shumer’s statements today regarding the hearing on the Madoff Case: I guess he forgot all about those contributions Madoff made to him? The question is, what did Madoff get in return?

10:27 a.m. | Elephant in the room: Senator Charles E. Schumer calls the fraud “a punch in the gut” to the financial system and castigates the S.E.C. for its failure to uncover the scheme. He likens the actions to a giant elephant standing in a small room next to the S.E.C. for decades and “not only did they not see the elephant, they didn’t even smell the peanuts on his breath,” Mr. Schumer says.

It gets a little more complex than that and the more complex it gets the easier it is to obfuscate the fraud. Let’s say a failure to deliver of 1 million shares of “Acme” occurs at the NSCC. The NSCC reaches into the “Automated Stock Borrow Program” (SBP) “lending pool” of securities and they grab 1 million shares of “Acme” and electronically transfer it to the “participants share account” of the buying party broker “B”. The FTD is “cured”.

They then debit the 1 million shares from the “participant shares account” of the loaner broker “L” that “donated” the shares into the lending pool at the SBP. They then credit broker L’s cash account with the cash value of the 1 million shares. He makes out nice because he just converted an electronic book entry gathering dust into cash that counts towards his net capital reserves and earns interest. Now you can see why everybody wants to donate their client’s shares into the SBP.

So “L” loses 1 million shares in his share account but gains the cash equivalent in his cash account. OK, so far so good. Since “L” can theoretically at any time can call back in that loan from the selling firm the NSCC deems it proper to credit “L” with a “long position” in a special NSCC “C” sub account. Thus a “long” position is created out of thin air and a “long” position at the NSCC now becomes equivalent to a mere “right to demand loaned shares back”. The “long position” awarded to the buying firm “B” represented real shares with a paper certificate in existence in a DTC vault. So all “long positions” are not alike at the NSCC.

The loaning broker “L” will never voluntarily call in that loan because he’d rather have the cash equivalent of those shares to make interest off of. So now a “long position” at the NSCC becomes “the right to demand back loaned shares which will never get voluntarily exercised” or maybe it represents a real share of Acme. We’re not allowed to learn which it is on any particular investor’s month end statement. Both will be represented on Acme’s shareholders’ monthly brokerage statements as “securities held long”, however. You can sense the bogus nature of “C” sub account “long positions” as an Acme shareholder would never in their wildest dreams that they paid full retail value for one of these.

If Acme used to have 100 million shares at the NSCC being held in “street name” they now have 101 million there but an investor or a corporation can never learn what is held in the “C” sub accounts pertaining to Acme so when asked they’ll say that there are 100 million shares held in “street name”. Apparently it’s none of our business because it’s a debt between 2 parties that deserves secrecy and it might reveal some “proprietary trading methodologies” of a hedge fund or market maker.

Above and beyond these shenanigans and of much greater importance is what goes on in “ex-clearing arrangements”. That term “arrangements” even sounds crooked. The NSCC does not know nor do they want to know about the massive amounts of FTDs housed there. It’s “none of their business” they say yet as an SRO or self-regulatory organization they are mandated to monitor the “business conduct of its participants” wherever it is being “conducted”. The SEC tells us that the SROs are the first line of defense against abusive naked short selling frauds. Yeah right, hand me my blindfold so I can stand guard on behalf of the investing public.

When you take into account all of the hiding places for FTDs on Wall Street you can see why the SEC admitted that the number of FTDs and the “securities entitlements’ they have procreated is too large to address with buy-ins lest there be issues with “market volatility”. That’s Latin for “short squeezes”. Yet to this day the DTCC insists that 99% of all trades “settle” on time and that the majority of the other 1% “settle” within 5 days. Yeah, that’s why BCIT has 4.7 million real “shares” outstanding and 350 million “securities entitlements” poisoning their share structure.

You can see the bogus nature of these “long positions” generated by the NSCC’s SBP. Now you have to keep in mind that after the buying broker “B” receives the electronic transmission of the shares donated to the SBP by “L” he is allowed by NSCC policies to place the same parcel of shares used to “cure” the FTD to place them right back into the same lending pool from whence they just came as if they never left in the first place. It’s a self-replenishing counterfeiting machine.

Not only can a certain parcel of shares generate these bogus “long positions” but any particular parcel of shares can generate dozens of them if they keep getting selected time after time to “cure” different delivery failures. But wait it gets even worse. Theoretically only shares held in margin accounts wherein the owner has signed a margin agreement to allow the “hypothecation” (loaning) of their shares but the NSCC refuses to monitor for the types of shares that are being “donated” into their SBP despite the huge financial temptation to cheat and put any old shares into these lending pools whether they be qualified retirement plan shares of type 1 cash account shares. Instead the NSCC puts all of their participants on the “honor system” in this regard. Once again this theoretical “first line of defense” against ANSS frauds says pass me the blindfold so that I can monitor my participant’s “business conduct”.

To top off all of this the SEC that had to approve of the SBP before it went into effect to this day refuses to make the NSCC change despite what it has morphed into over the years. When we’ve asked the NSCC to get rid of its corrupt counterfeiting nature they have four comments. Firstly, they can’t change it because the system is “automated”. Secondly, they say that they can’t change it because they have no “discretion” in the matter (even though they designed it and administer it). Thirdly, they remind us that the SEC signed off on it a couple of decades ago. Fourthly, they say that if anything were wrong with it then the SEC would make us shut it down and they haven’t told us to so we won’t. Hopefully the first job on Mary Schapiro’s task list is to get rid of that and many other counterfeiting programs. Keep in mind that for every single bogus “long position” they park in their “C” sub accounts since they procreate readily sellable “securities entitlements” that’s that many more “securities” they can buy and sell and earn commissions and fees off of.

Every member of Congress who took money from Madoff should be forced to return it to the investors who lost all this money. They want a claw back – start by clawing back all the campaign contributions into these members of congress.

Dr. DeCosta, I’m afraid I did not make my major point clear. Okay, the “heat-seeking” missile targets those most responsible, but what happens when those perps cannot make good. I.e., the massive buy-ins push prices of affected stocks higher, but those who drove them down have long ago disgorged their profits. The owners of DTCC are currently on life support from the TARP, courtesy of their co-perpetrator Henry Paulson, and now, perhaps, his acolyte Mr. Geithner. We all know we cannot size this scam, but it could be so big as to overwhelm those who would be forced to pay. What then?

I note that this site has been vandalized. My previous response was a follow up to an exchange between DeCosta and myself. Those posts and a number of others disappeared while I was composing my previous post and those links to spammer’s sites just preceding appeared. Hope this can be recovered…

The capitalistic system is only effective when greed is not part of the equation. Business schools do not preach that greed is bad. Perhaps we should look more at the root, than the flower. When will universities be held accountable?